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Economy Base Level

from Peter Radford

We are, no doubt, about to be barraged by a torrent of alternative facts concerning the economy and economic growth under our new leader. So let’s get a few facts on the table in order to set a base level for future reference. Let’s start with growth during the past six presidencies:

So, no, Obama was not the disaster Trump and the Republicans are trying to paint him as. The economy during Obama’s term outperformed that of his predecessor. This includes the enormous difficulty of digging out of the Great Recession without much help from Congress. Average growth through all that last six presidencies is around 2.8% a year, so boosting it to, and then maintaining it at, the 4.0% promised by Trump will take some extraordinary efforts, not to mention a defiance of history and is thus unlikely to occur.  

More likely Trump will benefit from the current relatively good pace of growth, and then be able to add a little to it by introducing some deficit spending related to infrastructure. We must, though, be cautious about making that forecast: as of now we have no idea what team Trump has in store for us. We do know that the Republicans have, since Reagan, opposed infrastructure spending financed by increasing the Federal deficit. They had no problem blowing a hole in the Federal budget under Reagan — we all recall Dick Cheney telling us that, in his words:  “deficits don’t matter” — but since the rise of the Tea Party the GOP has been dominated by a austerity hawk policy bias that has stymied any attempt to boost growth using government spending.

Given this, I imagine growth will accelerate this year — the economy has healed well even if the distribution of all this newfound prosperity is appallingly distributed — so look for GDP growth of about 3%. Next year it could be higher if Trump gets some sort of deficit spending through Congress. But after that I doubt this higher pace could be maintained, and I would expect GDOP to slide back towards the slower pattern of recent years.

I am only mentioning any of this so we can be clear about the facts and the base from which we are about to start. Presidents have remarkably little direct impact on the course of the economy so I am leery of associating growth with presidencies in principle. The policies of earlier presidents have a nasty habit of echoing in unexpected ways through time. Reagan, for instance, is responsible for the rapid uptake of the anti-social policy making that was carried on by Clinton. And the awful switch in corporate activity towards the pre-eminence of shareholder value as a key metric of management success was clearly a product of the neoliberal shift Reagan’s election heralded. He did not advocate such corporate behavior, but he undoubtedly set the stage for it. And history has shown that his administration marks the beginning of the slide in standards for the middle class and especially for workers in the lower income strata. Reagan himself, in terms of policies, may not have been responsible for that slide, but there is no doubt his ideological leadership was.

The question for us is, then, does Trump’s election mark the beginning of a new era and the rejection of the past forty years? Or is it simply an interlude dominated by a series of futile and short lived injections of energy that will rapidly dissipate and leave the economy basically unchanged? Will he tackle inequality? I doubt it. Will he introduce institutional changes to deal with the asymmetries of risk piled upon the shoulders of workers by the corporate led changes in the nature of work? Maybe, but that assumes he understands those changes. The evidence for that is thin: he looks very much like an old fashioned pro-business trickle down plutocrat. So don’t expect much other than  lot of hoopla, fanfare, and then not much else.

Let’s hope I am wrong, our workers need all the help they can get, but there’s no sign of Trump being their savior. His administration is packed with other plutocrats whose basic understanding of the how we arrived where we are is, to put it politely, next to zero. The next few years are more likely to be a cloud of dust than a step forward. And the bigger risks — such as mismanagement — are on the downside not the upside.

Caveat emptor.

  1. January 30, 2017 at 12:19 am

    Trump is a song and dance man, essentially a ride along in the wheel cart of history. And that cart is firmly trapped on the dusty rutted track of the 1930ies.

  2. patrick newman
    January 30, 2017 at 1:06 pm

    Cognitive dissonance on the government deficit is not confined to US conservatives. Very Humpty Dumpty – the importance of tackling the deficit means what I choose it to mean, neither more nor less. Hence cuts to corporate taxation, building a 2000 mile wall is OK but we cant afford to spend more on education and health. It’s a familiar political tactic in the UK where it has been used to cut public spending sometimes for relatively trivial sums.
    Trump’s idea of what is infrastructure spending may be unconventional and highly selective with benefits going entirely to business. What will the deficit hawks make of Trump’s spending and/or reducing taxation? They do not seem too bothered about the extraordinary level of defence spending by GDP for an advanced country (but well exceeded by Israel).

  3. Grayce
    January 30, 2017 at 1:58 pm

    Is it time to take a close look at Thatcherism? Ronald Reagan’s policies were an eloquent and polished version of Margaret Thatcher’s. (Was she almost our first female president?) The present Republican party seems to migrate toward Reagan and not the intervening Bushes.
    Having examined Thatcherism, we could list the parts that take us too far left, and make a new yardstick for checking Trump. With Theresa May swimming in the deep end to make Brexit work, she and Trump may reach out to the past as a lifesaver. Shouldn’t students of the economy be ready to “assist”?

  4. February 3, 2017 at 12:09 pm

    Have none of you seen the standard American Western movie? There’s always a store keeper. S/He fits one of two stereotypes. The kindly and poor store keeper who takes care of his community first and only later thinks of her/his profits. Or, the penny-pinching, acerbic, miser who helped no one unless there was profit in doing so. Margaret Thatcher was the daughter of just such a store keeper. So, she had no trust in or concern for her fellow humans. For her society (if it existed at all) was full of deadbeats and parasites. Most of these laborers and union members. Looking to live off the work and creativity of others. The others being mostly the aristocracy and business entrepreneurs. She worked hard to re-make the UK in that image. Reagan tried to follow suit in the US. He was not quite as psychotic as Thatcher so he could not achieve as much transformation, at least on the surface. But he infected the sub-surface and tacit culture of DC with his version of neoliberal economics (Reaganomics) and politics (government is not the solution). George H.W. Bush commented (in private) on both. In his view both were silly, unworkable, and would fail. Bush’s predictions proved prophetic and accurate. But some old line and many new conservatives saw an opportunity in these failures to rig the economy and shape politics to make business the hero and labor the villain. With the support of social conservatives, big business money (e.g., Kochs), think tanks, the “new” media, and right wing militias first the GOP and then a large part of the poor and working class were tuned into the new normal – anti-government, anti-tax, anti-union zealots. Our entire political and economic system today is based on a plan that failed and that just about everyone who supported it in the beginning knew had and would always fail. But a whole new world can be created under the cover of a failure. Especially one that promises wealth, power, and the good life, and blames its enemies (unions, liberals, elites) when that fails. It’s a beautiful, almost unattackable plan. And it’s worked so for. Trump’s not part of that plan. But his arrival is a result of actions based on the plan. In other words, Reagan laid the foundations for Trump and Trumpism. Thanks, Ronnie.

    • February 3, 2017 at 4:18 pm

      Thank you for this, Ken: much more like the Thatcherism I’m familiar with. Grayce didn’t seem to be being sarcastic, so his proposal to prime Trump with the more right wing elements of Thatcherism left me speechless!

  5. February 4, 2017 at 8:59 pm

    ” but since the rise of the Tea Party the GOP has been dominated by a austerity hawk policy bias that has stymied any attempt to boost growth using government spending.”

    The republicans are not against public spending. The chief crime is allowing it to happen under democratic presidents. There is even some talk of introducing a public option in their alternative to Obamacare.

    “Next year it could be higher if Trump gets some sort of deficit spending through Congress.”

    According to Larry Bartel’s book, all of the advantage Democrat’s have in economic performance over Republicans occurs in year 2. Late enough to not affect the first impression and too early to affect the next election.

    “Presidents have remarkably little direct impact on the course of the economy”

    When the Presidency and both branches of the economy are held by the same party the effect is huge. In fact, for Republicans, this has happened twice – 1920-1932 and 2000-2006. I don’t remember what the situation is for Democrats except that the strongest period of Democrat control was 1933-1945 when the economy grew by 10% per year.

    “Let’s hope I am wrong, our workers need all the help they can get, but there’s no sign of Trump being their savior. His administration is packed with other plutocrats whose basic understanding of the how we arrived where we are is, to put it politely, next to zero.”

    I certainly agree with this. The fact that our first “Mercantilist” president in a very long time got elected despite many other flaws points to a high probability of success when a genuine Mercantilist runs.

  6. February 5, 2017 at 5:25 am


    Per capita Real GDP – 2009 $s; per capita Real GDP factors out inflation and population growth

    1. 1940s 4.05%
    2. 1960s 3.52%
    3. 1790s 3.28%
    4. 1870s 2.78%
    5. 1980s 2.54%
    6. 1970s 2.48%
    7. 1920s 2.42%
    8. 1850s 2.39%
    9. 1880s 2.31%
    10. 1990s 2.07%
    11. 1950s 1.88%
    12. 1840s 1.48%
    13. 1910s 1.44%
    14. 1930s 1.32%
    15. 2010s 1.08% (after 6 years)
    16. 1830s 0.97%
    17. 1890s 0.90%
    18. 1820s 0.81%
    19. 1860s 0.76%
    20. 2000s 0.55%
    21. 1900s 0.50%
    22. 1800s 0.29%
    23. 1810s 0.09%

  7. February 6, 2017 at 4:48 am

    Republicans like frat parties. In fact, Republicans believe the entire nation should function like a frat party. We all know the sequence in a frat party. Somebody picks up the kegs. Party starts at 8. Everybody knows it will be great fun. Lots of sex. Somebody says s/he was raped. The party gets loud and raucous. Somebody call the cops. Cops bust the loudest partiers, and all the ones mostly naked and too drunk to stand up. Parents here about the party and the arrests. Now they think, how do we protect our kids. They get all the kids released. Those charged are either released to their parents or must serve only community service. Police records (what there of them) are expunged. Now the last few steps can vary depending on the crimes committed and the wealth level of the parents. Planning for next weekend’s frat party begins. The good news. Everyone at the party (and their parents) entrepreneurs their party participation, makes free and voluntary choices, and takes care of number one first. Cue, Disney’s “What a Wonderful World.”

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