Moneybox

Yes, Trump Should Get Credit for the Strong Economy. But His White House Should Be Honest About How We Got Here.

Kevin Hassett, Chairman of the Council of Economic Advisers, speaks during a briefing at the White House in Washington, DC, on September 10, 2018. (Photo by NICHOLAS KAMM / AFP)        (Photo credit should read NICHOLAS KAMM/AFP/Getty Images)
Kevin Hassett, Chairman of the Council of Economic Advisers.
NICHOLAS KAMM/Getty Images

On Monday, Kevin Hassett, chair of the White House Council of Economic Advisers, got up in front of the press and a delivered a presentation full of easily debunked charts massaged to make it seem as if the U.S. economy turned around more or less the moment Donald Trump was elected president. It was not very convincing.

At Vox, however, Matt Yglesias has offered a much better case for why Trump deserves some credit for our recent run of economic growth. Namely: He’s gone on a stimulus binge. (I made a similar point at the end of my piece earlier this week). The president signed a massive tax cut into law, as well as a budget that increased spending by almost $300 billion over two years, which most economists believe is giving our GDP a nice pop. While Hassett’s “arguments about a Trump-induced boom are overstated,” Yglesias writes, “it’s a mistake for Trump’s critics to overcorrect by pretending his policies have nothing to do with the good news we’ve seen this year.” In fact, moderate Democrats, who spent the Obama years fretting about deficits at the expense of slow growth, could learn a few lessons. “Fiscal stimulus when the labor market is short of full employment works — just ask Donald Trump.”

This brings us to an odd problem, though. The White House economic team does not actually want to admit that it has juiced growth through fiscal stimulus, because most dedicated conservatives still insist that stimulus doesn’t really work (the president himself, whose talked about needing to “prime the pump” economically, is a different story). Instead, it wants to credit deregulation and the effects of tax cuts on business investment rather than their impact on household spending. That’s why, even if the administration deserves some acknowledgement for its actual economic policies, it’s still important to debunk its economic arguments.

Trump’s deficits are not responsible for all of the growth we’re now experiencing; much of that is still just an extension of the gradual, steady recovery that began under President Obama. But the combo of spending and tax cuts has contributed to the pace of growth. Last quarter, the U.S. economy expanded at a 4.2 percent annualized rate. According to one measure produced by the Brookings Institution, lower taxes and higher spending by the federal government added a 0.51 percentage point boost to that figure (state and local spending tacked on another 0.17 points).

Fiscal Impact

Those numbers don’t include any multiplier effects—the downstream impacts where a dollar spent by the federal government creates more spending elsewhere in the economy. But they gives us a sense of how the GOP’s recent choice to flick dollar bills around like Jordan Belfort on a boat has influenced growth. Today, federal fiscal policy is giving the economy a bit of extra wind. For most of Obama’s second term, in contrast, it was a drag.

Trump’s economic team is trying to wave all of that away, however. During his presentation Monday, Hassett explicitly denied that Trump was benefiting from the effects of fiscal stimulus. Instead, he tried to argue that we’re witnessing a surge of business investment spurred by tax cuts—an idea for which there is, in fact, extremely weak evidence.

CHAIRMAN HASSETT: Yeah. Thank you for the question. And the first thing, before I turn to the trade part of the question, is that some people have also said, “Well, sure, the economy is strong, but that’s a sugar high.” But it’s not a sugar high at all. Because what’s happened is that the capital spending boom that we promised would happen if we passed the tax cuts is underway. And the cool thing about capital spending is that people build factories — that’s what capital spending is — and they do that in the first half of the year. It’s up 10 percent since the beginning of the year. And then in the second half of the year, those factories start producing output, so you get more output.

Hassett didn’t merely argue that Trump’s actual policies have improved the economy. Both rhetorically, and with his charts, he suggested that Trump’s mere election started improving things. “I can promise you that economic historians will 100 percent accept the fact that there was an inflection at the election of Donald Trump, and that a whole bunch of data items started heading north,” he told the press.

This is all fairly incredible, and it points to one of the central problems of talking about the current economy. Honest people in both parties should admit that Trump’s fiscal policies have given the economy a nudge. But honest people should also be honest about why. Instead, the White House will use any good news as validation for its decision to cut taxes on corporations and set fire to environmental regulations. That deserves pushback.