Not Obama’s Economy

 

It is a sign of the power of the presidency that we easily praise or blame the sitting president for all the economic successes or failures that take place during his term in office. By that standard, President Trump seems to be riding a boom that eluded his predecessor, and that prospect distresses the legion of Trump critics who regard him as an unmitigated disaster. Accordingly, they hope to credit today’s good times to the work of President Obama.

That thesis has been advanced by Vox commentator Ezra Klein. In confronting “The truth about the Trump economy,” he asks this question: “Did Trump unleash an economic miracle, or take credit for Obama’s work?” There is much to disentangle before answering that question correctly. It is well known that economic policies introduced in one year may well have effects long afterwards. Thus, in evaluating Franklin Roosevelt’s transformative economic reform, it is worth remembering that his taxation and budgetary policies had a relatively short time to produce any effects before they were overtaken by the massive military expenditures of World War II. Even in the short-run there is good reason to believe his many machinations prolonged the Depression. But the long-term verdict is clearer. The passage of the Motor Vehicle Act, National Labor Relations Act, the Fair Labor Standards act, the Civil Aeronautics Act and the Agricultural Adjustment Act—cartels all—retarded economic activities for decades to come. Thus, looking at the rates of employment or economic growth in different presidential periods is only the first step in a very complex process of evaluation.

Matters get only more complex for presidents who did not enjoy Roosevelt’s political dominance, which made it easier for him to enact his regulatory agenda. Most presidents have to contend with a raft of other influential players whose actions further muddy the waters. What happens when Congress exerts its economic clout in ways contrary to presidential policies, or when states like California try to fight national policies on a full range of environmental, real estate, and labor issues? And what role should be given to the position of independent agencies, including the Federal Reserve, over which the President only has limited powers? Private investment decisions turn not only on who occupies the White House, but also on predictions of who will hold office two or four years from today. President Trump could do everything right today, and it would count for naught if investors were sure that a progressive Democratic president in the mold of Bernie Sanders or Elizabeth Warren would win in 2020.

In order to render economic judgment on any president, it is necessary to look beyond aggregate statistics to make some independent evaluation of the discrete policies that mark a presidency. That task requires some time to decide which particular policies were pro-growth or pro-employment. And it is there that Klein falls flat, because he fails to identify any Obama policies whose positive momentum sparked the economy.

On the first issue, the key measure is whether a president promotes or frustrates competitive behavior. Under this standard, any protection of monopoly institutions is presumptively bad, while deregulation or tax reduction is presumptively good. Unsound Obama policies help explain the abnormally low rate of economic growth during his eight-year tenure.

Take this bill of particulars. Obama’s first innovation was the 2009 stimulus package, contained in the American Recovery and Reinvestment Act (ARRA), which was at best a mixed blessing. The stimulus program could work, if at all, only in the short-term. But the legislation also left a long-term legacy of protectionist legislation for key businesses and labor unions. The task now is to unwind the one-time stimulus spending from ARRA’s other entrenched provisions. Today’s economic successes come in the face of ARRA, not because of it.

Obama pushed through three other major pieces of legislation during his first term, all net negatives. The 2010 Affordable Care Act (ACA) created an immense tangle because it incorporated into health-care insurance many unsustainable features—a rich package of mandatory minimum benefits, community rating, mandatory coverage of preexisting conditions, and poor integration of federal and state programs. In 2017, the Republicans muffed the chance to implement major reforms of the ACA. Today the ACA is still in distress, but the Trump administration has resisted all efforts by insurers to find some alternative means which will slim down benefits to make the overall program affordable. No positive Obama legacy here.

In 2010, the Obama administration also passed the Dodd-Frank legislation to stabilize the financial markets after the 2008 debacle. On balance the legislation did more harm than good by concentrating too many assets in banks deemed too big to fail. It invited regulators to pursue an extended definition of a Systematically Important Financial Institution (SIFI) and with it the opportunity to expand the regulatory scope of Dodd-Frank. District Court Judge Rosemary Collyer rightly ripped to shreds the Obama administration’s decision to designate MetLife as a SIFI, and the Trump administration rightly dropped any efforts to overturn her decision. The Trump administration also eased regulatory burdens on mid-sized banks through Senate Bill 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, by raising from $50 billion to $250 billion the minimum amount of assets needed for a bank to be subject to SIFI oversight. No positive Obama legacy here either.

The third major piece of Obama reform legislation was the America Invents Act of 2011 (AIA), which again counts as a negative. The AIA was fiercely opposed by small inventors on the ground that it weakened patent rights and would make it harder for them to pursue patent protection, including injunctive relief. But wholly apart from some dubious substantive provisions, the AIA broadly expanded the process known as inter partes review, which anointed the highly political Patent Trial and Appeals Board (PTAB) with the largest say over patent policy. The Supreme Court unwisely sustained this process in Oil States Energy Group v. Greene Energy Services (2018). Fortunately, the Trump administration kicked upstairs David Ruschke, the highly politicized chief of the PTAB, though problematic structural risks remain. Verdict: no positive Obama legacy.

The Obama record on labor and employment law has been abysmal. Strong and cozy relationships with union leaders and efforts to make franchisors like McDonalds liable for the unfair practices of their franchisees willfully upended years of precedent. In addition, then-Secretary of Labor Thomas Perez sought to double the weekly salaries needed to exempt workers from the overtime provisions of the FLSA, an action that threatened to subject graduate research assistants, young employees at start-ups, and workers in the gig economy, none of whom are paid by the hour, to impossible regulations. The move was squelched by a federal judge and the Trump administration decided not to appeal. No positive Obama legacy.

Speaking more generally, I cannot think of a single mid-level Obama policy that counts as a pro-growth initiative. The same bad rap cannot be leveled against Trump, for, as the economists Edward C. Prescott and Lee E. Ohanian point out in the Wall Street Journal, the deregulatory cornerstones of the Trump administration are economically sustainable. Deregulation of labor and capital markets are not just a short-term shot in the arm, and the lower taxation of corporate income has worked to repatriate capital from overseas and to expand overall levels of investment. So long as these remain permanent features of the economy—a big “if” with an election coming up—private firms have the necessary time horizons to make much-needed long-term investments. That activity will in turn–as has begun to happen–rejuvenate labor markets. Youth unemployment hit a 50-year low, and the pace of hiring continues to rise. The stock market, always a leading indicator of future fortune, rose by about one-third in Trump’s first year in office and continues to hit all-time highs.

This stock market performance is all the more impressive because it has occurred in the face of serious Trump-created obstacles. President Trump is no fan of small domestic budgets, and he has run a perverse rearguard campaign to reverse the declining fortunes of the coal industry. Most importantly, he has waged a series of foolish trade wars against our long-term trading partners. His astounding ignorance on the principles of comparative advantage led Trump to unwisely pull out of the Trans-Pacific Partnership, thereby giving China—a friend to no one but itself—an invitation to take the lead across the Pacific Rim. His negotiation stance put NAFTA into unnecessary jeopardy: even at the eleventh hour when a deal seems likely with Mexico, the corresponding deal with Canada still hangs by a thread. And why? Trump insists in securing large American content in automobiles, but that industry loudly protests his protectionist policies.

Here is the bottom line: the gains from Trump’s (imperfect) domestic program look enormous, given the large economic drag of his trade policies. From this assessment it’s clear that classical liberalism with strong property rights, freedom of contract, and free trade is the only engine to economic prosperity.

© 2018 by the Board of Trustees of Leland Stanford Junior University

There are 18 comments.

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  1. Mark Camp Member
    Mark Camp
    @MarkCamp

    Richard, you claim to know a lot of things that you don’t, and these errors collectively form the essence of your thesis.

    I think you need to read some good books on economics before you venture to educate the public on economics.

    • #1
  2. Jager Coolidge
    Jager
    @Jager

    Mark Camp (View Comment):

    Richard, you claim to know a lot of things that you don’t, and these errors collectively form the essence of your thesis.

    I think you need to read some good books on economics before you venture to educate the public on economics.

    Could you be a little more detailed in your critique?

    What Obama policies do you think were pro-growth or longer lasting pro-growth than the Stimulus bill? Are you suggesting that markets and the overall economy do not respond to pro-growth things like lower taxes and decreased regulations?

    • #2
  3. Mark Camp Member
    Mark Camp
    @MarkCamp

    Jager (View Comment):

    Could you be a little more detailed in your critique?

    Yes.  First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed. 

    I can’t teach you these basics in a Ricochet comment.  Until you understand them, I can’t explain why some of Richard’s, and your, assumptions are incorrect.  Once you do understand the basics, you probably won’t need me to explain.  You will already know.

    • #3
  4. Hoyacon Member
    Hoyacon
    @Hoyacon

    Jager (View Comment):

    Mark Camp (View Comment):

    Richard, you claim to know a lot of things that you don’t, and these errors collectively form the essence of your thesis.

    I think you need to read some good books on economics before you venture to educate the public on economics.

    Could you be a little more detailed in your critique?

    What Obama policies do you think were pro-growth or longer lasting pro-growth than the Stimulus bill? Are you suggesting that markets and the overall economy do not respond to pro-growth things like lower taxes and decreased regulations?

    Seconded.  If Prof. Epstein is to be challenged on venturing from his area of expertise, far more than an abbreviated critique would seem necessary.

    • #4
  5. E. Kent Golding Member
    E. Kent Golding
    @EKentGolding

    Mark Camp (View Comment):

    Jager (View Comment):

    Could you be a little more detailed in your critique?

    Yes. First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed.

    I can’t teach you these basics in a Ricochet comment. Until you understand them, I can’t explain why some of Richard’s, and your, assumptions are incorrect. Once you do understand the basics, you probably won’t need me to explain. You will already know.

    Everyone who knows Anything  agrees with Mark Camp!  Its the essence of education!   At least Epstein explains his thesis.

    • #5
  6. Mark Camp Member
    Mark Camp
    @MarkCamp

    E. Kent Golding (View Comment):

    Mark Camp (View Comment):

    Jager (View Comment):

    Could you be a little more detailed in your critique?

    Yes. First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed.

    I can’t teach you these basics in a Ricochet comment. Until you understand them, I can’t explain why some of Richard’s, and your, assumptions are incorrect. Once you do understand the basics, you probably won’t need me to explain. You will already know.

    Everyone who knows Anything agrees with Mark Camp! Its the essence of education! At least Epstein explains his thesis

    It’s not my job to teach Richard basic economics, and if it were, I could not do it in this setting.  I may sound disrespectful and uncaring, but I sincerely want him to learn, and I sincerely believe that by reading some basic books on the subject, he could. 

    You think I’m dishonest and sarcastic because so many other people are, but I am neither dishonest nor sarcastic.

    We are so accustomed to uncivil words here on Ricochet that we automatically assume that someone who cares and is trying to make a helpful suggestion is just another one of the belligerents.

    • #6
  7. Mark Camp Member
    Mark Camp
    @MarkCamp

    E. Kent Golding (View Comment):

    Mark Camp (View Comment):

    Jager (View Comment):

    Could you be a little more detailed in your critique?

    Yes. First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed.

    I can’t teach you these basics in a Ricochet comment. Until you understand them, I can’t explain why some of Richard’s, and your, assumptions are incorrect. Once you do understand the basics, you probably won’t need me to explain. You will already know.

    Everyone who knows Anything agrees with Mark Camp! Its the essence of education! At least Epstein explains his thesis.

    Epstein does not explain his economic assumptions.  If he tried, he would not be able to, because they have no basis in economics.  He simply assumes that he knows what determines how good the economy is, for example.  Whatever the other pundits say is “good for the economy” must be “good for the economy”. 

    But if Richard understood the basics of economics (for example, in Adam Smith’s writings, he would learn that the “purpose of production is consumption”) he would know that he doesn’t know how good the economy is, assuming he also learned that the economy is a system of production.  Not a system of creating GDP “growth” statistics, or some centrally planned “consumer price level”, or stock market indexes, or jobless statistics, as the Keynesians and their offspring, including today’s pundits, believe. 

    • #7
  8. Hoyacon Member
    Hoyacon
    @Hoyacon

    Mark Camp (View Comment):

    E. Kent Golding (View Comment):

    Mark Camp (View Comment):

    Jager (View Comment):

    Could you be a little more detailed in your critique?

    Yes. First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed.

    I can’t teach you these basics in a Ricochet comment. Until you understand them, I can’t explain why some of Richard’s, and your, assumptions are incorrect. Once you do understand the basics, you probably won’t need me to explain. You will already know.

    Everyone who knows Anything agrees with Mark Camp! Its the essence of education! At least Epstein explains his thesis

    It’s not my job to teach Richard basic economics, and if it were, I could not do it in this setting. I may sound disrespectful and uncaring, but I sincerely want him to learn, and I sincerely believe that by reading some basic books on the subject, he could.

    You think I’m dishonest and sarcastic because so many other people are, but I am neither dishonest nor sarcastic.

    We are so accustomed to uncivil words here on Ricochet that we automatically assume that someone who cares and is trying to make a helpful suggestion is just another one of the belligerents.

    These are straw man arguments.  It’s perfectly reasonable for participants in threads to desire specifics in support of broad based, abbreviated critiques.  Pot shots, if you will. Moreover, your assumption that an intellect (admittedly, an intellect of the libertarian stripe) of the nature of Prof. Epstein doesn’t understand “basic economics” seems far-fetched, to say the least.

    • #8
  9. Mark Camp Member
    Mark Camp
    @MarkCamp

    Hoyacon (View Comment):

    Mark Camp (View Comment):

    E. Kent Golding (View Comment):

    Mark Camp (View Comment):

    Jager (View Comment):

    Could you be a little more detailed in your critique?

    Yes. First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed.

    I can’t teach you these basics in a Ricochet comment. Until you understand them, I can’t explain why some of Richard’s, and your, assumptions are incorrect. Once you do understand the basics, you probably won’t need me to explain. You will already know.

    Everyone who knows Anything agrees with Mark Camp! Its the essence of education! At least Epstein explains his thesis

    It’s not my job to teach Richard basic economics, and if it were, I could not do it in this setting. I may sound disrespectful and uncaring, but I sincerely want him to learn, and I sincerely believe that by reading some basic books on the subject, he could.

    You think I’m dishonest and sarcastic because so many other people are, but I am neither dishonest nor sarcastic.

    We are so accustomed to uncivil words here on Ricochet that we automatically assume that someone who cares and is trying to make a helpful suggestion is just another one of the belligerents.

    These are straw man arguments. It’s perfectly reasonable for participants in threads to desire specifics in support of broad based, abbreviated critiques. Pot shots, if you will. Moreover, your assumption that an intellect (admittedly, an intellect of the libertarian stripe) of the nature of Prof. Epstein doesn’t understand “basic economics” seems far-fetched, to say the least.

    Hoyacon, thanks for your opinions.

    • #9
  10. James Gawron Thatcher
    James Gawron
    @JamesGawron

    Richard Epstein: In order to render economic judgment on any president, it is necessary to look beyond aggregate statistics to make some independent evaluation of the discrete policies that mark a presidency. That task requires some time to decide which particular policies were pro-growth or pro-employment. And it is there that Klein falls flat, because he fails to identify any Obama policies whose positive momentum sparked the economy.

    Richard Epstein: Here is the bottom line: the gains from Trump’s (imperfect) domestic program look enormous, given the large economic drag of his trade policies. From this assessment it’s clear that classical liberalism with strong property rights, freedom of contract, and free trade is the only engine to economic prosperity.

    Richard,

    He just made the deal with Mexico. Everyone had been screaming that he damaged relations with Mexico. Now we see that Trump has the masterstroke. Canada would have already had a deal except for the childish politically correct Justin Trudeau. If Theresa May had not gummed things up with her Chequers fantasy Trump would have already sketched out the deal with Britain. I can’t predict everything but don’t you have the hunch by now that Trump, however he looks, knows exactly what he is doing.

    The American Economy hasn’t had this kind of broad-based growth since the 1960s. This is the kind of growth that reaches down and employs even the weakest. Damn, I’d like to see this continue on. Wouldn’t you?

    Got to keep their hands off the abort controller.

    Regards,

    Jim

    • #10
  11. Chris Campion Coolidge
    Chris Campion
    @ChrisCampion

    Mark Camp (View Comment):

    Richard, you claim to know a lot of things that you don’t, and these errors collectively form the essence of your thesis.

    I think you need to read some good books on economics before you venture to educate the public on economics.

    Considering the depth and breadth of Prof. Epstein’s writings and teachings, this sounds a lot like something a sophomore in college would say.

    Seriously.  This is embarrassing.

    • #11
  12. Chris Campion Coolidge
    Chris Campion
    @ChrisCampion

    Mark Camp (View Comment):

    Jager (View Comment):

    Could you be a little more detailed in your critique?

    Yes. First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed.

    I can’t teach you these basics in a Ricochet comment. Until you understand them, I can’t explain why some of Richard’s, and your, assumptions are incorrect. Once you do understand the basics, you probably won’t need me to explain. You will already know.

    So your detailed critique, that you claim to be able to provide, rests solely on the “go read books on economics”?

    How about instead of asking people to get up to your blazing intellectual speed, you actually critique the points in the article?

    I can’t teach you the basics of critical thought on Ricochet.  Only when you understand how to form an argument, you probably won’t need me to explain why I’m throwing up all over the keyboard at the insanity of these comments.

    • #12
  13. Stad Coolidge
    Stad
    @Stad

    Good post.

    • #13
  14. Larry3435 Member
    Larry3435
    @Larry3435

    Mark Camp (View Comment):

    Richard, you claim to know a lot of things that you don’t, and these errors collectively form the essence of your thesis.

    I think you need to read some good books on economics before you venture to educate the public on economics.

    Mark, I guess I also need to read some “good books” on economics.  Perhaps you would give me the titles of these “good books.”  Apparently I was not exposed to these books in the process of obtaining my economics degree from UCLA.  Stranger still, I have managed to follow the US economy for some 40 years without ever becoming aware of these “good books,” that would answer the questions that actual macro-economists have been unable to answer for all that time and for decades before that.  How disheartening it is to learn that there are some “good books” that would have given definitive answers to the question of why the economy behaves as it does, and infallible predictions as to the impact of various political policies on the future of the economy.  I think it is cruel of you to leave me in my ignorance by taunting me with the existence of these “good books” and then not telling me their names.

    Maybe when we’re done with this, Mark, you would even identify some “good books” on theology and philosophy that would give definitive answers to all the questions and debates that have absorbed theologians and philosophers for thousands of years.  It would be good to know, for example, the true nature of God, of beauty, and of good and evil.  Again, it will be so good to put all the uncertainty behind me and learn the one true answer to those questions as provided by your list of “good books.”

    • #14
  15. milkchaser Member
    milkchaser
    @milkchaser

    Mark Camp (View Comment):
    Yes. First you will need to read a few good books on economics, and when you understand the basics, I will be a little more detailed.

    We could not possibly understand unless we’d joined the secret club and learned the magic phrases. It’s just not something that can be imparted via language alone.

    • #15
  16. milkchaser Member
    milkchaser
    @milkchaser

    And what are the Bush policies that caused the Recession? And was it Obama did to reverse it (since growth restarted only 5 months after he was sworn in, it was probably not an Obama policy). Obama loved to blame Bush, but never with specificity.

    • #16
  17. Mark Camp Member
    Mark Camp
    @MarkCamp

    Chris Campion (View Comment):
    Seriously. This is embarrassing.

    Chris:

    Sorry you feel that way.

    Before I defend myself, I’d like to correct one criticism: I only encourage a person to study economics if I think he or she has a strong intellect, which I think the author of the article does.

    I mention it because the claim that I said the opposite about Richard is the most extraordinary and insulting of the inventions that creative readers have attributed to me.

    Regarding the point you bring up–my Comment and whether I should feel embarrassed about it…

    If I had wanted to argue one of the points of economic conventional wisdom that Richard, like 99% of our conservative intellectuals, has absorbed from the socialists and other statists, I would have argued it, as I have done on these pages numerous times.

    But my intent was simply to advise Richard to study the subject more carefully.  I knew it would bring down a certain amount of self-righteous condemnation on my head. 

    But I’m not embarrassed.  I have come to realize that there is very little anyone can do in a Ricochet post to address the rat’s nest of statist economic fallacies that have infected the Conservative or right-of-center intellectual community.

     

    • #17
  18. Mark Camp Member
    Mark Camp
    @MarkCamp

    Larry3435 (View Comment):
    Perhaps you would give me the titles of these “good books.”

    This is exactly the right question.  That is because my recommendation to Richard is simply one example of a greater need for action on the part of all of our intellectuals, not just him.

    Liberalism is at a crisis, and it is a crisis of ideas.  There are fundamentally two economic traditions today, mainstream or “orthodox”, and “Austrian” or “heterodox”.

    Our movement’s intellectuals have adopted orthodox macro-economics, a theory which leads inevitably to interventionism, and ultimately to socialism and poverty.

    The crisis consists in the fact that if they do not learn the opposing theory, which leads inevitably to economic freedom, our pro-American, idea-based movement will disappear, and the banner will be taken up by demagogue-led populist mobs whose willingness to see the great American institutions of economic liberty come to grief is as great as the socialists’ determination.

    I am thinking of writing an article on your question because the reading must be  purpose-driven, which makes it complex.  I could give some guidance (read anything by Bastiat, Boem-Bawerk, Mises, Hoppe (on the foundations of science), Hayek, Salerno, Huerta de Soto) but I would want to first frame the problem that needs to be solved.

    This would involve taking each of the foundational fallacies of orthodox macro-economics, side by side with the complementary assertion of liberal theory, and then and identifying works that address each of these points.

    Just knowing that you got a degree in economics from a prestigious university tells me nothing.  A book that would challenge the particular beliefs of one such person (say, Alexandra Occasio-Cortes) would not necessarily be helpful to you.

    • #18

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