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Does Trumponomics Deserve Credit for Rising Optimism?
President Donald Trump’s overview of the budget priorities for Fiscal Year 2018 on its release by the Office of Management and Budget (OMB) in Washington, March 16, 2017. REUTERS/Joshua Roberts.
As I have been writing, fears of a stagnationary New Normal seem to have receded, at least for now. Just ask the booming stock market, right? Also ask the suits. “Leaders of the largest US companies are becoming more optimistic about sales growth, hiring and capital investment, causing a measure of chief-executive sentiment to increase by the most in seven years,” the Wall Street Journal reports.
The simplistic, US-centric explantion is that the Trump fiscal and regulatory agenda deserve a good bit of the credit. But I find that explanation curious given the deep uncertainty about, for instance, the state of tax reform and infrastructure spending. Not to mention Trump trade policy. Also, things are looking bright beyond America’s shores. From the Economist:
Fears about Chinese overcapacity, and of a yuan devaluation, have receded. In February factory-gate inflation was close to a nine-year high. In Japan in the fourth quarter capital expenditure grew at its fastest rate in three years. The euro area has been gathering speed since 2015. The European Commission’s economic-sentiment index is at its highest since 2011; euro-zone unemployment is at its lowest since 2009. The bellwethers of global activity look sprightly, too. … The Institute of International Finance reckons that in January the developing world hit its fastest monthly rate of growth since 2011.
And obviously better times elsewhere have an effect here at home. And overall the passage of time since the Global Financial Crisis has allowed economies to heal. Again, the Economist:
Most important, the upswing has nothing to do with Mr Trump’s “America First” economic nationalism. If anything, the global upswing vindicates the experts that today’s populists often decry. Economists have long argued that recoveries from financial crashes take a long time: research into 100 banking crises by Carmen Reinhart and Kenneth Rogoff of Harvard University suggests that, on average, incomes get back to pre-crisis levels only after eight long years. Most economists also argue that the best way to recover after a debt crisis is to clean up balance-sheets quickly, keep monetary policy loose and apply fiscal stimulus wherever prudently possible. Today’s recovery validates that prescription. The Fed pinned interest rates to the floor until full employment was in sight. The ECB’s bond-buying programme has kept borrowing costs in crisis-prone countries tolerable, though Europe’s misplaced emphasis on austerity, recently relaxed, made the job harder. In Japan rises in VAT have scuppered previous recoveries; this time the government wisely deferred an increase until at least 2019.
I also blogged the other day about secular stagnation theory vs. financial cycle theory as lenses through which to view the slow US recovery. I would also note the Fed rate hikes do not seem to be in anticipation of much growth from Trumponomics. The economy was a mess in 2009 when Barack Obama took office, but it wasn’t when Donald Trump took office in January. Now is the time to push smart structural reform, not massive fiscal stimulus, to boost the economy’s growth potential. Lots of good news out there — especially job growth — but Q1 real GDP growth still show the US has a 2% economy at best.
Published in Economics
I saw a patient today who runs a 5000 person business that interfaces with the government. President Obama signed some dopey law that claims/complaints even totally unsubstantiated ones would blackball a company in this are of business. Union folks would blackmail him using this law. This law is now repealed and business can go on. People who work for a living are happy now.
James, open your eyes.
Like so many macro economists he focuses on old statistics, the only kind we have. Those aggregated data lose most of their meaning in the course of being aggregated. Your anecdote tells us more but it’s hard if not impossible to aggregate. There’s no role in it for macroeconomists. So we end up with animal spirits and the mood and movements that give rise to the positive expectations about the future. The future is where all economics takes place so it’s natural to be in the aggregated dark and for optimism to give rise to entrepreneurial activity.
Out in the really real world , where macro economists are as useful as teats on a bull, people are excited to have a business friendly pro-America administration. How stupid does someone have to be not to see the enthusiasm in certain sectors of the economy. The enthusiastic people walk in my office every day. Man, the arrogance of intellect is alive and well in the ivy coated walls of some people.
So it’s got nothing to do with the Winner of the election – it’s just the passage of time. Just purely a coincidence that there sure as shootin’ seems to be an economic inflection point in Early November of 2016. Nothing to see here, move along.
The animal spirits, and the rest of the world, are all so relieved to be rid of Team Obama and Team Hillary that a positive vibe is unavoidable.
Yes. Of course.
Who would ask a silly question?
Keep in mind that the the economy got better under Harry Truman who largely kept FDR’s New Deal alive.
The fundamental problem of economics is that we don’t know if this economic growth would or would not have occurred under a Hillary Presidency.
A science of single instances isn’t actually a science.
The economic experts may not be sure of much but they are 100% sure they don’t want to give Donald Trump any credit. [Insert chart/graph here.]