Algorithm Finds No “Trump Effect” on the US Economy, at Least Not Yet

 

So imagine an alternate reality where Hillary Clinton campaigned a bit more vigorously in supposedly safe Big Ten blue states and eked out a narrow Electoral College victory. So, no President Donald Trump. And also no tax cuts, no deregulation, no trade war. How would the US economy — which Trump describes as “stronger than ever before!” —  be performing right now? Or to put it another way: Is there an economic Trump Effect?

Well, not so much, according to “Stable genius: Estimating the ‘Trump effect’ on the US economy” by researchers Benjamin Born, Gernot Müller, Moritz Schularick, and Petr Sedlácek. Their conclusion: “The impact of President Trump on the macroeconomic performance of the US economy has been negligible so far. We measure neither an acceleration of growth nor increased job creation in the US economy relative to an appropriate benchmark.”

With no ready access to the multiverse of the Quantum Realm, BMSS tried a rather clever approach to this economic “what if” question. First they let an algorithm construct a “doppleganger” of the US economy by selecting a weighted combination of other advanced economies (with higher weights attached to Canada, the UK, Denmark, and Norway). This twin rhymed the US economy over the past twenty years, and served as a control for the experiment. They then compared the path of the US economy since the election of Trump to its doppelganger that did not get the “treatment” of electing Trump. And this was the result:

From the BMSS analysis:

The main result can be easily spotted visually – there is no acceleration of the US economy relative to the doppelganger. If anything, the doppelganger outperforms initially and by mid-2018 there is no discernible difference. It is important to stress that the doppelganger has been constructed exclusively on the basis of observations prior to the vote. And yet, the doppelganger tracks the behaviour of the US economy very closely after the vote as well. This means that the US economy behaves just as it did before the election. Trump, in other words, was immaterial for US growth. The doppelganger grew just as fast.  This result stands in contrast to the substantial effects that the synthetic control method helps uncover in other situations. For instance, in our analysis of the Brexit vote we find a large and significant effect on UK GDP. In the seven quarters after the referendum, UK GDP declined relative to its doppelganger by close to 2%.

Now to be fair, what this experiment is trying to test is the impact of Trump on the economy vs. a sort of status quo — not the possible economic policies of Clinton. But that said, the result really isn’t that surprising. The tax cuts passed only late last year, deregulation takes a while to move from press release to implementation, and the US vs. the World trade war is only now really gearing up. It’s notable that in testimony yesterday Federal Reserve Chairman Jay Powell seemed reluctant to give fiscal policy much credit for what’s been happening in the economy. (And let’s not forget this is perhaps more accurately the Bernanke-Yellen-Powell economy.) Overall, this has stayed a Two Percent Economy under Trump, and good luck finding a big difference in job growth pre- and post-Trump’s election:

Now all that may change as the stimulus from the tax cuts and federal spending increases causes a growth surge, as both Washington and Wall Street are predicting. But even then, we won’t really know if Trumponomics is working. The goal isn’t supposed to be a sugary surge but rather a long-term, structural supply-side change in the economy’s growth potential. The tax cuts, for instance, aren’t meant to merely give consumers more spending money today but accelerate growth and raise wages by boosting investment and productivity. That will take time, though maybe we are starting to see signs of that investment upturn. For now, though, both proponents and skeptics should probably hold their fire and avoid making any big, sweeping conclusions.

Published in Economics
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  1. James Gawron Inactive
    James Gawron
    @JamesGawron

    JimP,

    I think lumping in the US economy with the other economies is already a strange approach. Of course, HRC told us in her last debate speech that taxes, regulation, and the general distrust of the free market were all going to be increased when she took office. As if after 8 years of Obama these factors weren’t already hyper-accentuated. I would take HRC at her word. That surely would have choked off any recovery that might have been pending.

    In fact, the difference between what Trump and the average Democrat would do to the economy is so stark that I would suspect that right now there is hesitation because of the mid-terms. Once the outcome of the mid-terms is known then we may see Trumpian economic growth in full.

    Regards,

    Jim

    • #1
  2. Miffed White Male Member
    Miffed White Male
    @MiffedWhiteMale

    What happened to what we were assured for the past couple years was “the new normal”?

     

    • #2
  3. Frank Monaldo Member
    Frank Monaldo
    @FrankMonaldo

    All,

    Economies are correlated.  It could be the case that the “Doppelganger” economy just mimicked the US economy. The weighted average of economies could have increased or decreased because the US economy did better or worse. This Doppelganger does not at first glance appear to be a control case.

    Frank

    • #3
  4. Stad Coolidge
    Stad
    @Stad

    James Pethokoukis: Well, not so much, according to “Stable genius: Estimating the ‘Trump effect’ on the US economy” by researchers Benjamin Born, Gernot Müller, Moritz Schularick, and Petr Sedlácek. Their conclusion: “The impact of President Trump on the macroeconomic performance of the US economy has been negligible so far. We measure neither an acceleration of growth nor increased job creation in the US economy relative to an appropriate benchmark.”

    Science!

    As opposed to reality?  I’ll take reality any day.  After all, it’s what we have to deal with . . .

    • #4
  5. Hypatia Inactive
    Hypatia
    @Hypatia

    Okay, is there anyone reading my comment, not an economist, who can explain how this makes sense? 

    Or is the OP just saying the economic policies of any US president don’t have much effect? 

    • #5
  6. Fake John/Jane Galt Coolidge
    Fake John/Jane Galt
    @FakeJohnJaneGalt

    Here is the thing.  I know people that were made unemployed under Obama economy and spent a extended time looking for jobs under the same.  Now under the Trump economy all these individuals are employed.  Maybe not as well as they want but at least money is coming in.  As one of them told me, “Under Obama I could not buy a job, under Trump people are actively pursuing to employ me.”  

    I do not know what the economist are measuring but it is not the reality of what people are seeing.  

    • #6
  7. Henry Racette Member
    Henry Racette
    @HenryRacette

    Models. Gotta love a model.

    How valid is this model, do we think? And, more importantly, how can we test how valid the model is?

    Well, one easy way to test it is to run it forward and see how it does. The difference between “modeling” and “curve fitting” is that only one of them is predictive. Can this model predict the next two years of U.S. economic performance with decent accuracy? If not, should we believe that it accurately predicted the U.S. performance in some counter-factual universe?

     

    • #7
  8. James Gawron Inactive
    James Gawron
    @JamesGawron

    Miffed White Male (View Comment):

    What happened to what we were assured for the past couple years was “the new normal”?

     

    Miffed,

    You know from our experience with the phony man-made global warming models tailored to make the eco-obsession look real, we are very suspect of these kinds of “formulas”. Two years ago everyone insisted that 1.5% growth was the new normal. Now the change is written off as “already in the pipeline”. This sounds like manipulation of the models to make the destructive governance of Obama look good and to steal credit from Trump.

    I think the American public already knows the truth and will be going to vote in November with it in mind. Nice try but no sell.

    Regards,

    Jim

    • #8
  9. AltarGirl Member
    AltarGirl
    @CM

    Hypatia (View Comment):

    Okay, is there anyone reading my comment, not an economist, who can explain how this makes sense?

    Or is the OP just saying the economic policies of any US president don’t have much effect?

    Hmmm… if I understand this correctly, it is a mild critique of some Economists who claim no Trump Effect.

    He generally agrees.

    However, the criticism from the OP is first, that they assume status quo and that HRC would have no impact on the economy; and second, that not much time has really passed from tax reform and regulations to now and it does take time to see effects.

    It isn’t very strong criticism.

    • #9
  10. Misthiocracy, Joke Pending Member
    Misthiocracy, Joke Pending
    @Misthiocracy

    Miffed White Male (View Comment):

    What happened to what we were assured for the past couple years was “the new normal”?

    That was just propaganda for all their own anti-capitalist supporters who like low economic performance because it increases equality.

    • #10
  11. Misthiocracy, Joke Pending Member
    Misthiocracy, Joke Pending
    @Misthiocracy

    Henry Racette (View Comment):

    Models. Gotta love a model.

    How valid is this model, do we think? And, more importantly, how can we test how valid the model is?

    Well, one easy way to test it is to run it forward and see how it does. The difference between “modeling” and “curve fitting” is that only one of them is predictive. Can this model predict the next two years of U.S. economic performance with decent accuracy? If not, should we believe that it accurately predicted the U.S. performance in some counter-factual universe?

     

    Well, it’s not just the model. 

    It’s also the fact that the trendline doesn’t change direction upon Trump’s election.  The GDP was growing before the election, and continued to grow at the same rate after the election.

    It’s similar to the argument that Australia’s ban on semi-automatic weapons had no substantive effect.  The rate of gun crimes had already been falling before the ban, and continued to fall at the same rate after the ban.

    • #11
  12. Misthiocracy, Joke Pending Member
    Misthiocracy, Joke Pending
    @Misthiocracy

    Here’s where I’m curious: 

    We often see stories about the low unemployment rate.  However, we saw similar stories about low unemployment when Obama was President, and lots of conservatives claimed the unemployment rate is a faulty indicator and that we should look at the Labor Force Participation Rate instead.

    So, how is the Labour Force Participation Rate looking these days?

    • #12
  13. Henry Racette Member
    Henry Racette
    @HenryRacette

    Misthiocracy, Joke Pending (View Comment):

    Well, it’s not just the model. 

    It’s also the fact that the trendline doesn’t change direction upon Trump’s election. The GDP was growing before the election, and continued to grow at the same rate after the election.

    Well shoot. I’ll bet those modelers wished they’d noticed that before they spent all that time and money creating a model.

    • #13
  14. Jim McConnell Member
    Jim McConnell
    @JimMcConnell

    I think the Experts should try explaining their models and their reasoning to all the Americans who got bonuses, pay raises and jobs. Or do those things not count to macro-economonists?

    • #14
  15. Jamie Lockett Inactive
    Jamie Lockett
    @JamieLockett

    This tends to prove the adage that any particular president’s effect on the economy is dwarfed by the trillions of other factors at work each and every day. 

    • #15
  16. Chuck Enfield Inactive
    Chuck Enfield
    @ChuckEnfield

    Hypatia (View Comment):

    Okay, is there anyone reading my comment, not an economist, who can explain how this makes sense?

    Or is the OP just saying the economic policies of any US president don’t have much effect?

    I think you got it, and it shouldn’t be surprising.  Economic decision makers, i.e, all of us, respond to conditions.  Economic conditions in large, free, stable economies don’t change radically or rapidly.  That’s a good thing.

    This isn’t to say that policy doesn’t influence economic conditions at all.  Short-term economic results are most effected by confidence.  While economic conditions generally dictate the available options, confidence influences which of the available options decision makers take.  When confidence is high people are more likely to take risks that result, in the aggregate, in greater growth.  When confidence is low, people tend to protect their wealth and growth suffers.

    Assuming we avoid stupid extremes, government policy has a modest effect on the overall economy.  There are too many other factors for government policy alone to drive economic success or failure.  That said, we should continue to care about economic policy as, given a chance, these modest effects compound over time and can make a big difference in the long run.

    In general, sitting presidents get way too much credit, good or bad, for “their” economies.  That said, sustaining an economic expansion for 9 years is no mean feat. The longer he keeps it going the more likely I am to give him credit for a “Trump Effect” whether or not economists agree.

    • #16
  17. Chuck Enfield Inactive
    Chuck Enfield
    @ChuckEnfield

    Fake John/Jane Galt (View Comment):
    Here is the thing. I know people that were made unemployed under Obama economy and spent a extended time looking for jobs under the same. Now under the Trump economy all these individuals are employed. Maybe not as well as they want but at least money is coming in. As one of them told me, “Under Obama I could not buy a job, under Trump people are actively pursuing to employ me.”

    Economic growth doesn’t equal quality of life.

    • #17
  18. Hammer, The (Ryan M) Member
    Hammer, The (Ryan M)
    @RyanM

    Interesting. Though, it’s difficult to measure the alternative. I wonder what the “Hillary effect” would be.

    • #18
  19. Columbo Member
    Columbo
    @Columbo

    Henry Racette (View Comment):

    Models. Gotta love a model.

    How valid is this model, do we think? And, more importantly, how can we test how valid the model is?

    Well, one easy way to test it is to run it forward and see how it does. The difference between “modeling” and “curve fitting” is that only one of them is predictive. Can this model predict the next two years of U.S. economic performance with decent accuracy? If not, should we believe that it accurately predicted the U.S. performance in some counter-factual universe?

     

    Yes, models … garbage in, garbage out.

    • #19
  20. Jamie Lockett Inactive
    Jamie Lockett
    @JamieLockett

    Columbo (View Comment):

    Henry Racette (View Comment):

    Models. Gotta love a model.

    How valid is this model, do we think? And, more importantly, how can we test how valid the model is?

    Well, one easy way to test it is to run it forward and see how it does. The difference between “modeling” and “curve fitting” is that only one of them is predictive. Can this model predict the next two years of U.S. economic performance with decent accuracy? If not, should we believe that it accurately predicted the U.S. performance in some counter-factual universe?

     

    Yes, models … garbage in, garbage out.

    Can you break down for us what exactly the problems are with the data set, algorithm and statistical weighting that leads you to this conclusion?

    • #20
  21. Chuck Enfield Inactive
    Chuck Enfield
    @ChuckEnfield

    Misthiocracy, Joke Pending (View Comment):
    So, how is the Labour Force Participation Rate looking these days

    Stabilized, but with no significant improvement over the last couple years of the Obama Administration.

    • #21
  22. Could Be Anyone Member
    Could Be Anyone
    @CouldBeAnyone

    Jamie Lockett (View Comment):

    This tends to prove the adage that any particular president’s effect on the economy is dwarfed by the trillions of other factors at work each and every day.

    That doesn’t get votes though.

    • #22
  23. Could Be Anyone Member
    Could Be Anyone
    @CouldBeAnyone

    The OP is quite right in advising caution in regards to economic prognostications. An economy is a number of people producing and trading goods. In a nation that is mostly free market the government can have an effect, almost always to the negative, but it is not the driving force nor the determinant factor. The people in the economy are.

    When bureaucrats create regulations (x barrier) people will try to get around it, thus nullifying it. It may take a while but eventually it happens. It’s why even with the god-awful legion of rules and regulations that exist the US economy still grows and sees recovery, regardless of administration. 

    • #23
  24. RightAngles Member
    RightAngles
    @RightAngles

    Benjamin Born, for one, strikes me as pretty anti-Trump, and all of them are anti-Brexit. They also all write that Trump likes to take credit for our good economy, but that he actually inherited it from Obama. So excuse me if I’m a skeptic, and if I dislike seeing yet another anti-Trump headline on the Main Feed of this site.

    • #24
  25. RightAngles Member
    RightAngles
    @RightAngles

    Hammer, The (Ryan M) (View Comment):

    Interesting. Though, it’s difficult to measure the alternative. I wonder what the “Hillary effect” would be.

    Well I don’t.

    • #25
  26. Jamie Lockett Inactive
    Jamie Lockett
    @JamieLockett

    RightAngles (View Comment):

    Benjamin Born, for one, strikes me as pretty anti-Trump, and all of them are anti-Brexit. They also all write that Trump likes to take credit for our good economy, but that he actually inherited it from Obama. So excuse me if I’m a skeptic, and if I dislike seeing yet another anti-Trump headline on the Main Feed of this site.

    This comment encapsulates why this site has become so boring. It’s no longer that we look at the study and arguments presented, find its flaws and argue against it. Instead now it’s “is this piece and the people who wrote and conducted the study sufficiently pro or anti Trump”. With all the predictable demarcations along predictable lines. Not even an attempt to look at the argument at face value. 

    Boring. Repetitive. Tense. 

    • #26
  27. RightAngles Member
    RightAngles
    @RightAngles

    Jamie Lockett (View Comment):

    RightAngles (View Comment):

    Benjamin Born, for one, strikes me as pretty anti-Trump, and all of them are anti-Brexit. They also all write that Trump likes to take credit for our good economy, but that he actually inherited it from Obama. So excuse me if I’m a skeptic, and if I dislike seeing yet another anti-Trump headline on the Main Feed of this site.

    This comment encapsulates why this site has become so boring. It’s no longer that we look at the study and arguments presented, find its flaws and argue against it. Instead now it’s “is this piece and the people who wrote and conducted the study sufficiently pro or anti Trump”. With all the predictable demarcations along predictable lines. Not even an attempt to look at the argument at face value.

    Boring. Repetitive. Tense.

    Do you place faith in a “study” whose authors are clearly biased and post anti-Trump memes on their Twitter feeds? I don’t. As to your closing insult which will surely never be redacted by a moderator as usual, well I must admit I’ve been tense a lot lately. I can’t  comment on whether I’m seen as repetitive or boring of course.

    • #27
  28. Henry Racette Member
    Henry Racette
    @HenryRacette

    Jamie Lockett (View Comment):

    Columbo (View Comment):

    Henry Racette (View Comment):

    Models. Gotta love a model.

    How valid is this model, do we think? And, more importantly, how can we test how valid the model is?

    Well, one easy way to test it is to run it forward and see how it does. The difference between “modeling” and “curve fitting” is that only one of them is predictive. Can this model predict the next two years of U.S. economic performance with decent accuracy? If not, should we believe that it accurately predicted the U.S. performance in some counter-factual universe?

     

    Yes, models … garbage in, garbage out.

    Can you break down for us what exactly the problems are with the data set, algorithm and statistical weighting that leads you to this conclusion?

    My own comment was a general observation about models. I assumed Colombo’s was as well.

    • #28
  29. Could Be Anyone Member
    Could Be Anyone
    @CouldBeAnyone

    RightAngles (View Comment):

    Jamie Lockett (View Comment):

    RightAngles (View Comment):

    Benjamin Born, for one, strikes me as pretty anti-Trump, and all of them are anti-Brexit. They also all write that Trump likes to take credit for our good economy, but that he actually inherited it from Obama. So excuse me if I’m a skeptic, and if I dislike seeing yet another anti-Trump headline on the Main Feed of this site.

    This comment encapsulates why this site has become so boring. It’s no longer that we look at the study and arguments presented, find its flaws and argue against it. Instead now it’s “is this piece and the people who wrote and conducted the study sufficiently pro or anti Trump”. With all the predictable demarcations along predictable lines. Not even an attempt to look at the argument at face value.

    Boring. Repetitive. Tense.

    Do you place faith in a “study” whose authors are clearly biased and post anti-Trump memes on their Twitter feeds? I don’t.

    Notice how again this has not mentioned the data or argument as having faults, but the author. This is textbook Ad hominem fallacy. I don’t care if its a talking donkey that brings forth the argument I should engage the argument and not the messenger.

    And as Jamie mentioned it is boring and repetitive because when you attack the person and not the idea you are simply pushing them away. It does not move the ball on whether the argument is right or not but likely creates alienation. Such is not conducive for thoughtful discussion.

    • #29
  30. James Gawron Inactive
    James Gawron
    @JamesGawron

    Moderator Note:

    There was nothing oblique about it, unfortunately. You quite explicitly used the word "trolling".

    Jamie Lockett (View Comment):

    RightAngles (View Comment):

    Benjamin Born, for one, strikes me as pretty anti-Trump, and all of them are anti-Brexit. They also all write that Trump likes to take credit for our good economy, but that he actually inherited it from Obama. So excuse me if I’m a skeptic, and if I dislike seeing yet another anti-Trump headline on the Main Feed of this site.

    This comment encapsulates why this site has become so boring. It’s no longer that we look at the study and arguments presented, find its flaws and argue against it. Instead now it’s “is this piece and the people who wrote and conducted the study sufficiently pro or anti Trump”. With all the predictable demarcations along predictable lines. Not even an attempt to look at the argument at face value.

    Boring. Repetitive. Tense.

    Jamie,

    Recently I was redacted for simply implying obliquely that a member was trolling. I think your comment insults the entire site. I think your comment is exceptionally insulting to the particular member in good standing who you aimed it at. I am not a mod, however, I think you owe an apology, both to the member and to Ricochet generally. What you consider a proper comment is so dry as to be soulless. If you want a Ph.D. in statistics, get yourself one. Leave us out of your obsession.

    Regards,

    Jim

    • #30
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