An international comparison
October 14, 2020
IN HIS NEW book, Casey Mulligan offers an intriguing explanation of why President Donald Trump is making extravagant economic statements. Mr Trump knows he is hyberbolizing when he says America has benefited from the largest economy in world history under his watch, suggests Mr Mulligan, who was until recently the chief economist to the president of the Council of Economic Advisers. It is a strategy to get the press to cover a new fact, that is to say to exaggerate it so that the press can take pleasure in correcting it and unintentionally disseminating the expected result. Journalists dislike Mr. Trump, according to Mr. Mulligan, blinds them to many of the administration’s real economic successes. He might be right.
The evaluation of the economic records of the leaders is very difficult. Presidents typically get credit when the economy is doing well and blame it when it is doing badly, but short-term economic outcomes are usually more influenced by central banks, demographics, and what happens in the rest of the world. world, among other factors. Even today, political scientists continue to question whether the economy of the 20th century performed better under Democratic or Republican administrations. All of this is of little use to the American public, whose vote for a president must be based, in part, on a real-time assessment of economic competence.
Mr Trump came to power with unrealistic promises to create 25 million jobs and spur economic growth, and to that end, cut taxes and increase spending, widening the budget deficit (see graph 1). Economists will continue to weigh the specific costs and benefits of these policies. A real assessment will take time. At present, however, it is possible to assess whether the U.S. economy as a whole has done better or worse under Mr. Trump. It involves comparing actual US economic performance, on the one hand, to what an unbiased viewer might have reasonably expected, on the other hand. To this end, The Economist has assembled a range of economic data, from business investment to wage growth, comparing America’s economic performance to that of other wealthy countries where possible.
Most of the analysis covers the period from 2017, when Mr. Trump took office, to the end of 2019. We stop at 2019 in part because some data is only released once a year, and in part because the pandemic has overthrown economies around the world. down. Our conclusion is that in 2017-2019, the US economy performed slightly better than expected. (This conclusion remains if we follow the practice of some political economists, who argue that presidents’ influence on the economy can only be discerned after a year in office, and limit our analysis to 2018-19.)
Consider the gross domestic product (GDP), a measure of production that is the most common measure of economic performance. GDP growth was somewhat faster in 2017-2019 than it was in Barack Obamas’ first or second term, according to official data. America has also done well compared to other countries. The global economy peaked in 2017. In 2018, it slowed down but America accelerated. In 2019, America also slowed down, but stayed ahead of the rest.
Another way to approach this question is to assess whether America in 2017-2019 exceeded or did not meet the expectations of economists (see Chart 2). In October 2012, the IMF predicted that over the next four years (those of Mr. Obamas’ second term), the US economy would grow by an annual average of 3%. In fact, it turned out to be too optimistic; it has actually grown by almost 2% per year. But the IMF was too pessimistic in its projections for 2017-19, released shortly before the 2016 election. During those years America has outperformed forecasts.
But while the US economy has done better than expected in some ways, it has disappointed in others. Take the corporate sector, which Mr. Trump helped by cutting taxes. Corporate tax cuts have effectively increased after-tax profits, one of the reasons the US stock market has performed relatively well since Mr. Trump took office (see Chart 3). America has also become a more preferred destination for foreign direct investment (see graph 4). But there is little evidence of the promised boom in business investment (see Figure 5).
The performance of the labor market in the Americas is also nuanced. While Mr. Trump is particularly fond of bragging about monthly employment figures, it is difficult to prove that in 2017-2019 the jobs machine was running. Job growth has been slower than it had been during Mr. Obamas’ second term. In 2009-2016, the unemployment rate in the Americas declined compared to the average for other G7 economies (see Chart 6). Under Mr. Trump, unemployment fell to its lowest since the 1960s, but it was not exceptional internationally. The Americas’ improvement relative to employment in other countries halted under Mr. Trump.
The plight of working-class Americans, however, improved markedly in 2017-2019. Comparing household income between countries has been difficult, certainly in recent years. But while there is some disagreement over the reliability of the data for 2019, where the pandemic made it difficult for researchers to conduct surveys, there is clear evidence of accelerating growth in median household income. of the Americas from 2017 (see graph 7). . A tight labor market has also helped increase the growth in wages of the lowest paid Americans, relative to others, to a degree not seen since Bill Clinton was president (see Chart 8).
And what about the economy in 2020? Mr. Trump lets go of his fiscal policy before the pandemic leaves America with much higher debt before the crisis. On top of that madness, this year the United States implemented the world’s largest fiscal package (see Chart 9), issuing stimulus checks worth up to $ 1,200 per person and by temporarily increasing unemployment insurance payments by $ 600 per week. It is possible, though unlikely, that Congress will pass even more stimulus measures ahead of the election. Even without another package, however, and even though it is going through a deep recession, America will likely be the best performing G7 economy in 2020, perhaps by far. Just before the pandemic, the US economy seemed slightly stronger than other wealthy countries. Before long, the gap may be more impressive.
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