Magazine | August 12, 2019, Issue

The Trump Economy 

(Roman Genn)
There’s a lot for him to take credit for

Wages are growing, and corporations are whining about it.

MarketWatch reports that mentions of “labor costs” in companies’ earnings calls with investors have doubled since 2016. Businesses’ tendency to name labor costs as their No. 1 problem in surveys has soared as well. Per the Atlanta Fed’s Wage Growth Tracker, wages grew 3.7 percent in the year ending in May, and growth was strongest at the bottom: 4.4 percent for the lowest-earning quarter of the population.

Late last year, the Conference Board, a business group, warned of a blue-collar-labor “shortage,” a word the New York Times has deployed as well to describe the struggles of restaurant owners and farmers. Some pundits have urged higher immigration levels to address this irritant so that businesses don’t have to (gasp) pay even more to attract native workers.

Meanwhile, the overall unemployment rate dropped to 4 percent early last year and has remained around or below that threshold since. High-school grads with no college have a rate just a pinch higher than the national one. For African Americans, unemployment is hovering around 6–7 percent, the lowest numbers on record. Labor-force participation is improving as well, including that of the disabled.

In short, more people are working, and those who work are getting paid more.

Should we give the Trump administration credit for any of this? Unfortunately, it’s exceedingly difficult to tie policy changes to economic trends, and many key economic indicators have been gradually and steadily improving since well before Trump took office. But the question of whether Trump can take credit is a lot easier.

Trump’s election coincided with the final blossoming of a very slow recovery, and the Trump administration has made numerous policy changes geared toward spurring the economy in general and helping less skilled workers in particular. Even if economists can’t say with certainty how effective these measures have been, the president will have little trouble on the campaign trail tying his decisions to the economy’s performance — assuming the good performance continues — because the public tends to hold presidents re-sponsible for whatever the economy does.

Trump’s economic-policy efforts have centered on deregulation, tax cuts, and trade. Despite many stumbles, his administration has made numerous changes in these areas that he can link, rhetorically and sometimes empirically, to better outcomes for workers.

On regulation, Trump undeniably broke with President Obama’s tendency to add far more red tape to the economy than he removed. The regulatory apparatus of the Trump administration is stocked with libertarian-leaning experts, and new regulations (especially those deemed “significant” for having economic effects of at least $100 million) have slowed significantly. He’s also removed some old regulations — thanks in part to a “one in, two out” rule by which regulators must undo two regulations for each one they add — though this has been less aggressive than some had hoped.

As Clyde Wayne Crews of the Competitive Enterprise Institute details in the 2019 edition of his “Ten Thousand Commandments” report, Trump and Congress quickly wiped out 14 rules that the Obama administration had finalized in its closing months, and withdrew or delayed more than 1,500 more that had not been finalized. Among much else, the administration dropped the Clean Power Plan and recently finalized a replacement that’s far friendlier to the coal industry; scrapped “net neutrality”; and chipped away at Obamacare, both through executive action and with the help of Congress. Trump is also finalizing a plan to halt the Obama administration’s attempt to double vehicle fuel-economy standards by 2025.

One can argue about whether the benefits of these various pre-Trump policies were worth the costs — but one cannot argue with the reality that forcing businesses and individuals to comply with regulations does cost money. Exactly how much money is hard to say. From 2017 through the end of this year, the administration’s Office of Management and Budget has put the savings of Trump’s deregulatory efforts at about $50 billion (in “net present value”), which works out to about $400 per household. Naysayers have downplayed such estimates and quibbled with the administration’s accounting, accusing it, for example, of taking credit for efforts that actually began under Obama. Future savings are even harder to estimate, but for what it’s worth, the White House’s Council of Economic Advisers claims that “after 5 to 10 years, [the administration’s] new approach to Federal regulation will have raised real incomes by $3,100 per household per year.”

Regardless of the true savings Trump has achieved, it’s not unreasonable to lament some of the administration’s failings, especially those that came during the time it had a Republican Congress to work with. As the legal scholar Jonathan H. Adler has noted, many of Trump’s efforts have been held up in court because his administration often fails to comply with the laws governing how rules are changed. And Congress didn’t manage to pass legislation reining in future administrations’ power to undo much of what Trump has done. What is done by executive action, rather than legislation, may be undone that way too.

It would be a stretch to say Trump’s deregulatory efforts turbocharged the recovery, but he did keep the government from hamstringing it, as may have happened under a President Hillary Clinton. And we might see bigger benefits in the years to come.

What about the tax cuts? In late 2017, Trump signed a bill to reduce rates for individuals and corporations in the hopes of spurring job-creating investment. Here experts are generally in agreement about two things: 1) Most taxpayers got a tax cut, though the lowest earners didn’t pay much in taxes to begin with; 2) the effects on the overall economy have been fairly minor so far.

In March of 2018, as Tax Day approached, the left-leaning Tax Policy Center estimated that the middle quintile by income (from the 40th to the 60th percentile) would get a $780 tax cut on average, with the next-lowest quintile receiving $320 and the lowest $40. The next month, H&R Block reported that its customers’ taxes had fallen 25 percent, with an average reduction of $1,200. The cuts were not noticed as much as they might have been, thanks to the fact that the law adjusted paycheck-withholding formulas rather than sending everyone a specially branded GOP Tax Cut Check. But they were substantial nonetheless, not least for the working and middle classes.

As for the effect on the economy as a whole, the Congressional Research Service recently put out a much-discussed report on the topic. CRS pointed out that various economic indicators (output, investment, etc.) were not doing much better than the Congressional Budget Office had expected them to do without the tax cuts. Critics of the report, such as Kyle Pomerleau of the right-leaning Tax Foundation, stressed the difficulty of connecting tax changes to economic trends — the CBO’s old projections are not exactly a scientific control group — and added that one would not necessarily expect the tax cuts to boost the economy so quickly. If businesses make investments because of the law, for example, those investments will take time to create jobs and growth.

As with environmental regulations, you can of course debate whether the tax cuts were worth the cost (in this case higher deficits and debt). But they unambiguously put money in Americans’ pockets, and the jury is still out regarding their effects on growth. 

Finally, there’s the matter of trade. Here, unfortunately, the consensus is that Trump’s actions have mainly been harmful. He backed out of the Trans-Pacific Partnership, which had been expected to boost American GDP by about 0.5 percent annually, and has levied tariffs on numerous products from numerous other countries, sparking retaliation.

As a result of the latter policy, American consumers are paying tariffs on imported goods — it’s not, generally, the sellers who ultimately pay tariffs, though their sales can fall thanks to higher prices — and many American businesses are facing a harsher export market and higher prices on the imports they rely on to make their products. One trio of economists estimates that, as of the end of 2018, the tariffs were reducing real income in the U.S. by $1.4 billion a month, which works out to $132 per household per year. 

Job losses from trade restrictions typically outnumber job gains in the protected industries, and last year the Tax Foundation predicted 79,000 lost jobs over the long run from some of Trump’s proposals, though it will take economists some time to work out the numbers on what actually happened, given the numerous waves of restrictions that have been implemented and how frequently they are delayed or canceled as new agreements are reached. Estimates thus far indicate that — even ignoring any jobs lost — each protected job is costing nearly a million dollars a year.

A possible bright spot, though, is Trump’s renegotiation of NAFTA, in which the administration secured new rules for automobiles and digital goods. The International Trade Commission finds that the new agreement will modestly boost GDP and employment (by 0.35 percent and 0.12 percent respectively) — but only in the long run, and only assuming it’s ratified, which may prove difficult in a sharply divided Congress. 

On trade, however, as on regulation and taxes, Trump can connect policy changes to economic success even if the experts don’t agree. Such arguments work because voters respond to how the economy is doing, not to what professional policy analysts say about why.

The state of the economy is an enormous predictor of a president’s reelection chances. One statistical model, from the political scientist Alan I. Abramowitz, correctly predicts the winner of every election featuring an incumbent president from 1948 through 2012 using nothing but economic growth, the president’s approval rating, and whether the president’s party has controlled the White House for longer than one term — and in that model, “every one point in real GDP growth is associated with an increase of almost 20 electoral votes.” On a similar note, a recent Goldman Sachs analysis cast Trump as a narrow 2020 favorite, despite his low approval ratings, thanks to the strong economy and the advantages of incumbency.

Have Trump’s actions substantially boosted the economy? Relative to what Clinton might have done, maybe; in and of themselves, probably not, though they might have bigger effects in the future. But he took actions, and the economy soared, and perhaps that’s all that matters to voters.

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