Trump Didn’t Make This Economy

The low unemployment rate, decent wage growth, and solid corporate earnings are all artifacts of a long expansion, not signs that a very stable genius in the White House has unleashed American enterprise.

Last night, as on so many other nights of his presidency, Donald Trump touted the economy’s prowess. “Three years ago, we launched the great American comeback. Tonight, I stand before you to share the incredible results,” he said during his State of the Union address. “The years of economic decay are over.” The economy “is the best it has ever been.” And it is all happening thanks to Republicans.

In taking credit for a financial upswing, Trump is engaging in a hallowed and bipartisan American political tradition—and a blustery one. The White House has far less control over the economy than generally assumed. And Trump’s signature economic legislation, the 2017 Tax Cuts and Jobs Act (TCJA), has not provided anything like the economic “rocket fuel” the Republican White House promised, particularly not for blue-collar workers in the heartland.

Contrary to Trump’s crowing at the State of the Union, the country’s growth performance is not unusual or extraordinary. It is good. Solid. A, B, maybe a B–, not an A+. The Bureau of Economic Analysis recently reported that the economy is expanding at a 2.1 percent annual rate—not bad for a developed economy this late in the business cycle, yet roughly half of the 4 percent rate the administration promised. The low unemployment rate, decent wage growth, solid corporate earnings, and a booming stock market: Those are all artifacts of a long, long expansion, not signs that a very stable genius in the White House has unleashed American enterprise.

Indeed, the economy remains on pretty much the exact same growth path it has taken for the past decade: There is no inflection point around the time of the 2016 election or the late-2017 passage of the TCJA, or any inflection point at all. Growth has plodded along at 2.5 percent a year, give or take. The unemployment rate has been falling consistently. Not much has changed.

This is not surprising: Presidents are sometimes responsible for major negative economic shocks, such as when the White House helped trigger a banking panic in the mid-1830s or when President Richard Nixon implemented price controls in the 1970s. And they and their choices matter a tremendous amount when the economy is in free fall. The Obama White House, for instance, helped avert a second Great Depression, but still undershot the stimulus by a 13-digit number. But when an economy is growing? Presidents tend not to matter much in the near term. They do not control monetary policy. They have only partial control of fiscal policy. The policy changes they enact tend to take years, if not decades, to wend their way into corporate balance sheets and local investment decisions and family pocketbooks.

The TCJA is, in some strange way, proof of that fact: Despite being a sweeping, trillion-dollar piece of legislation, it has not managed to alter employment or investment trends much in the past few years. Trump’s theory of the case was a reasonable one: Across-the-board tax cuts would boost household spending and slashing corporate tax rates would lead to a dramatic uptick in business investment, improving productivity, hiring, and wage growth.

But tax cuts are less effective stimulus than direct-spending provisions; tax cuts aimed at the wealthy are less effective stimulus than tax cuts aimed at the poor; and adding stimulus during an expansion is less effective than adding stimulus to an ailing economy. Lo and behold: Trump’s tax cuts did help families on the margin, but so little that most households did not notice the effect. As for the corporate cuts, the right-of-center American Enterprise Institute has concluded that there was “no discernible break in trend” in business investment. The impact is “not noticeable” in the data, at least not yet. Many economists think that the TCJA provided only a minor boost to the economy, a boost that seems to have already faded.

Nor has Trump managed to deliver any kind of blue-collar economic miracle, contrary to his arguing last night that “we are restoring our nation’s manufacturing might.” In the past year, employment gains in construction and manufacturing have slowed down, with mining firms actually shedding jobs. The White House’s trade war has hit blue-collar firms hard, leading to layoffs, farm closures, and the need for billions of dollars in bailouts. Factory activity has hit the lowest point in a decade. Rural areas continue to lag high-cost cities in terms of job creation, productivity gains, and wealth creation.

Trump inherited a decent economy that continues to be decent, and has managed to avoid tipping it into a recession. The state of the union, in economic terms, is okay. But the really good news for Trump is that voters seem to credit him with today’s growth, and are likely to reward him for it in November.