EbeneInfo – CA – Did Trumponomics beat Obamanomics?

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There was a widespread feeling that the modern economy had structural limitations that prevented stepping out of this narrow range

Before the coronavirus shattered US prosperity in March, the economy was doing well There isn’t much debate about it There is, however, a lot of disagreement over how much credit should be given to policies adopted during the term of President Donald Trump Bloomberg opinion columnists Ramesh Ponnuru and Karl W Smith found themselves on different sides of this issue and discussed it via email

Ramesh Ponnuru: Karl, you and I are members of a very small club, being a) economic conservatives who are b) relatively accommodating on monetary policy according to the terms of the debate of the last 10 years and c) The Columnists Bloomberg Opinion So it’s no surprise that I agree with a lot of things in your recent column about how Trump’s economy has performed better than Obama’s. The economy was strong during Trump’s first three years in office, and Democrats made themselves stupid by denying it.I also basically agree with you on which Trump policies should be maintained: namely, tax cuts and a Federal Reserve getting it wrong on low interest rates

But I don’t think any of Trump’s policies can withstand the weight you place on them Looking at trends in unemployment and gross domestic product growth, I don’t see Trump’s election, nor his inauguration, nor the promulgation of the 2017 tax cut as an inflection point What I am seeing are positive trends that continue And as in the last prolonged U boom before this one, in the 1990s the later stages saw a tight labor market which translated into widespread wage gains

You’re suggesting that Trump’s critics were wrong in doubting he could produce 3% growth But we only had one year of that growth (if you round up), not the « sustained » growth of 3% that the administration has set as a target So it seems to me that the people who said that it could not be done, or at least would not do it, were… right

Karl W Smith: I’m glad you agree that the trend in growth rates has continued and that has brought people back into the workforce. What I’m seeing is that in 2016, trends had started to slow down, as expected at the end of the cycle The Fed did not expect any future improvement in unemployment The Congressional Budget Office expects slower economic growth The San Francisco Fed predicted that the new growth ceiling would be around 15% In addition, Treasury and Fed policy had been focused on reducing the deficit and normalizing interest rates, which are two conventional things to do if you thought you had reached full employment

If you had believed in the consensus, you would have thought that a deviation from these policies would not have succeeded in increasing employment and would instead have resulted in higher inflation and, consequently, higher rates. long-term interest Trump stepped back from policies – and got lower unemployment and higher labor force participation Inflation stayed below the Fed’s 2% target and long-term interest rates have been moderated It seems clear that the predictions guiding conventional wisdom – and politics – were wrong

I think the only dispute is whether Trump himself deserves to be recognized for this In some sense it’s a metaphysical question I tried to avoid it by addressing the column to the president-elect Joe Biden and saying, « Look, these are results your administration wouldn’t have predicted Also if you go back to the goal you had before – raise taxes, try to increase jobs through programs. training and ignore monetary policy – you will likely get worse results »It’s hard to see how wrong it is

RP: There is another problem to consider: when the performance of the economy deviates from forecasts, how much of the difference should be attributed to policy changes, how much to other changes and how much? to flaws in the forecasts? The Trump years weren’t the first time forecasters got it wrong, after all CBO expected real growth to be 14% in 2013; it entered at 18% It would certainly have been a mistake to conclude that the tax increases and spending restrictions implemented during this period caused the economy to outperform

The inevitable mistakes of even the best forecasters explain why it can be useful to look at the real performance of the economy at different times – as your column has done You noted that the real median household income has increased from a pathetic 0 4% from 1999 to 2016 then increased by 92% from 2016 to 2019 Comparing a long period to a short one can give a startling but potentially misleading statistic If you only look at the period 2014-2016, you see an improvement faster of this indicator than what was achieved under Trump It also makes me skeptical of the possibility of concluding that the policy changes have had strong positive effects. But then, as a conservative, I may have a tendency to underestimate the power of government policy!

KWS: Your point is well understood and I guess at the end of the day my argument is as much about the framework that produced these forecasts as it is about the policy assessments For example, household income has been trapped in a small range for decades In 2014 it was near the low point of that range, so many economists believed it could and should increase naturally By 2016 it had peaked, so economists became more pessimistic about further improvements

There was a widely held feeling that the modern economy had structural limitations that kept it from stepping outside this narrow range Our Bloomberg Opinion colleague, Tyler Cowen, wrote a book on this phenomenon called ‘The Great Stagnation’. Former Treasury Secretary Lawrence Summers liked the phrase “secular stagnation.” Their theories were deeper and more sophisticated than simple household income statements, but they – and others like them – hinted that the mere fact of ‘increasing demand would not work

Some theories, like the one proposed by entrepreneur and Democrat aspiring President Andrew Yang, suggested that without radical economic restructuring, employment and household income would collapse. Yet the years 2018 and 2019 have shown that the economy was mainly suffering from a cyclical problem and that an aggressive counter-cyclical policy was enough to get out of this trap

I consider this weakens the case for government intervention We don’t need industrial policy, a free college or a universal basic income to raise the middle class We just need support the free market with adequate demand – preferably from the Fed, but I will take tax cuts or, ultimately, even government spending – and entrepreneurs themselves will find a way out of stagnation. Trump’s economy, perhaps because of its ineptitude, demonstrated what private enterprise could accomplish if it received simple but sufficient support

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners

Ramesh Ponnuru is a Bloomberg Opinion Columnist He is Editor-in-Chief at National Review, Visiting Scholar at the American Enterprise Institute, and Contributor to CBS News

Karl W Smith is a Bloomberg opinion columnist He was previously vice president of federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina He is also the co-founder of the Modeled Behavior economics blog

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Donald Trump, Bloomberg, Federal Reserve

EbeneInfo – CA – Did Trumponomics Really Beat Obamanomics?

Source: https://www.livemint.com/opinion/online-views/did-trumponomics-actually-beat-obamanomics-11606022351135.html

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