Research shows that high taxes harm economic growth
Even with a forecast budget surplus of $17.6 billion over the next budget biennium, the DFL leaders in St. Paul are proposing to raise a range of taxes. There are…
Getting out of the way of the economy.
The Trump administration was punctuated by a string of “explosive” books — mostly composed of unsourced tittle-tattle — which were published, “exploded,” and disappeared. You’re Hired! Untold Successes and Failures of a Populist President by Chicago University Economist Casey B. Mulligan, who served as chief economist of President Trump’s Council of Economic Advisers (CEA) from September 2018 to August 2019, is, thus, a rare thing: A serious book about the Trump presidency.
Mulligan gives an insider’s view of how the administration made economic policy. That policy was successful. It might be hard to remember now, among the economic ravages of COVID-19, but President Trump’s boastfulness about the American economy under his watch had some justification.
Remember how, the day after Trump’s election, economist turned columnist Paul Krugman said: “…[W]e are very probably looking at a global recession, with no end in sight.” But when the Census Bureau’s “Income and Poverty in the United States: 2019” report was released, it showed that median household income was $68,703, up 6.8 percent from 2018, to reach the highest level, adjusted for inflation, since the bureau began measuring it this way in 1967. The official poverty rate was down 1.3 percentage points from 2018 — that’s 4.2 million fewer Americans living in poverty — to reach 10.5 percent, its lowest level on record.
True, these numbers continued trends which began under President Obama’s administration and credit should be given where it is due. But some trends ticked up when Trump took office. The Census Bureau numbers show that in his first three years in office median incomes for all households rose by more than $6,000. And these gains were widely shared. Black Americans saw their incomes rise by $3,389 under the Trump administration, Hispanics by $5,322, women by $3,029. Every group saw a larger income gain in three years under Trump than in the 16 years under George W. Bush and Barack Obama ($3,000). This explains why a September 2020 Gallup survey found that 56 percent of registered voters believed they were better off then than four years before. They actually were.
Indeed, when COVID-19 hit, the American economy fared comparatively well. OECD data show that, from the fourth quarter of 2019 to the second quarter of 2020, real GDP fell by 10.1 percent in the United States compared with 11.5 percent in Germany, 13.4 percent in Canada, and 15.1 percent for the eurozone. This is a testament to the underlying strength of the American economy.
Key sources of this strength were the Trump administration’s tax cuts and deregulation. The passage of the Tax Cuts and Jobs Act pre-dates Mulligan’s time in the CEA so it gets relatively little coverage here, though Mulligan speaks very positively of the act. Mulligan’s focus is on deregulation, particularly in health care. Regulation is the economic policy arm most often ignored, perhaps because it cannot be as easily quantified as fiscal and monetary policy, so this discussion is particularly interesting.
It wasn’t all good, of course. President Trump’s trade war with China imposed costs on the American economy which offset some of the positive impact of fiscal and regulatory policy. Like most economists, Mulligan opposed these policies, but he goes too far in looking for a secret sense hidden behind them. A look at Trump’s statements, going back to his criticisms of Japan in the 1980s, shows that he isn’t just pretending to be a mercantilist. He actually is.
President Trump’s style, too, could impose economic costs. Major policy changes were sometimes announced on Twitter, seemingly with little prior consultation. This policy uncertainty also acted as a headwind to growth. Here too, I think, Mulligan goes too far in exculpating President Trump. His characterization of the president’s use of Twitter as the crafty utilization of a massive focus group stretches credibility. Indeed, it is something of a paradox that, despite his ceaseless tweeting, President Trump’s supporters — his real audience — were the sort of people least likely to be reached using social media.
If the economy does well we credit the president. If it does badly we blame him. In truth, the control of presidents over economic outcomes is less complete than we — or they — would like to think. Presidents can do a lot of harm with misguided policy, but, on the positive side, they often do best when they do least. As time progresses and the heat hopefully dissipates from the debate regarding the Trump administration, we will get analysis that accounts for this nuance. Mulligan’s book will be a valuable part of that.