Unleash an economic miracle, or take credit for Obama’s work?

The truth about the Trump economy

Did Trump unleash an economic miracle, or take credit for Obama’s work?

By Ezra Klein

“Six months ago, we unleashed an economic miracle by signing the biggest tax cuts and reforms,” President Donald Trump said earlier this summer.

Politically, a lot rides on perceptions of economic performance. Incumbents are almost always reelected amid strong economies. They are frequently defeated amid weak ones.

If Trump really has unleashed “an economic miracle,” that’s a powerful argument for his reelection, and for the Republican Congress that supported him. If the good economic news is a mirage, or if Trump is just riding the Obama administration’s economic policy coattails, then his sole claim to success evaporates. So which is it?

Let’s begin with the data. In July, the economy clocked its 93rd uninterrupted month of job growth — the longest stretch in American history. For the first time on record, there are more open jobs than job seekers. The unemployment rate is 3.9 percent; the last time the unemployment rate was this low was in 2000, the tail end of the Clinton boom.

According to Gallup, 65 percent of Americans believe this is a good time to find a quality job, among the highest readings the pollster has recorded since they began asking the question in 2002.

The cheerful economic news is largely absent from worker paychecks, though. Average hourly wage growth has been 2.7 percent over the past year, anemic given the power and length of the economic expansion. Making matters worse, a surge of inflation, driven by higher oil prices, has clawed back almost all those wage gains, as David Leonhardt documents at the New York Times.

These trends didn’t begin with Trump’s election. This is what the unemployment rate has looked like since 2012. If you can detect a sharp break between the Obama and Trump economies, you’ve got a keener eye than I do:

Looking at job growth yields a similar picture. Depending on which period you’re talking about, you can argue that job growth since Trump was elected has been a bit slower or a bit faster than in the years preceding him, but it’s all clearly within the same trend.

“If you take a look at President Obama’s second term, he was adding 217,000 jobs,” says Betsey Stevenson, an economist at the University of Michigan who served as chief economist at the Labor Department under Barack Obama. “And since Trump assumed the presidency he’s been adding 189,000 jobs per month. I’d say those are roughly around the same ballpark. But I don’t think Trump should be bragging that he’s somehow doing something that President Obama wasn’t doing.”

The same is true for GDP growth. “Not too long ago, progressive economists said strong economic growth couldn’t be done anymore— that a stagnant U.S. economy was the ‘new normal,’” tweeted House Speaker Paul Ryan. “And yet, our economy is growing at its fastest rate since 2014.”

There is something odd about suggesting you’ve owned the libs and defied the odds by returning to a growth rate last seen during Obama’s second term. At any rate, the Bureau of Economic Analysis offers this chart, which again makes a strong case that we’re basically seeing an economy similar to that of Obama’s second term.

It’s hard to look at this data and argue that the Trump economy represents a sharp break with the Obama economy.

But that argument cuts both directions. Trump hasn’t unleashed an economic miracle, but he hasn’t caused a crisis either. Plenty of liberals believed a Trump victory would be devastating for the economy, tanking stock markets amid fears of trade wars, nuclear wars, and political chaos. That Trump has managed to keep growth going might be a less impressive record than he claims, but it’s a more impressive record than many of his critics expected.

“I’ll give the president credit for not steering the economy into a ditch,” says Aaron Sojourner, a labor economist at the University of Minnesota who closely tracks economic trends. “That’s the main accomplishment. He inherited a strong economy, strong trends, after a campaign of telling us the economy was terrible and awful and we had to make America great again. And now he’s declared victory.”

How Republicans stopped worrying and remembered they love deficits

To the extent we’ve seen a modest growth bump over the past year, the driving reason might be one Republicans are loathe to admit: After years of refusing the Obama administration’s entreaties to lift sequestration and cut taxes for workers, congressional Republicans have joined Trump to boost government spending by hundreds of billions of dollars and pass $1.5 trillion dollars in unpaid tax cuts.

There’s been, in other words, a large, deficit-financed, demand-side stimulus of the sort Republicans condemned when Obama asked for it but were all too happy to pass as soon as Trump took office. And after years in which Republicans warned that fear of long-term debt was stopping corporations from investing and the economy from growing, they’ve added trillions to the national credit card without any evident harm to the economy.

“Trump took the Obama economy and added a Keynesian spending boost Republicans never would’ve let Obama do,” says Sojourner.

The disappointment is that more of this money hasn’t shown up in wages. The good news, to the extent that there is good news, is that recent pay raises have been concentrated at the bottom end of the income distribution. Workers in the bottom 40 percent of the income distribution are seeing faster real wage growth than they have since the late-1990s, but wages overall are growing more slowly than would be expected for an economy that’s grown this much for this long.

Different economists have different explanations for what’s come to be called “the wage puzzle”; my colleague Matt Yglesias has a great piece on this. But the fact remains that a strong economy hasn’t led to proportionately bigger paychecks. This likely explains why the Trump administration’s tax cuts remain resolutely unpopular: The public heard about trillions of dollars in money coming down the pike, but they seem to be getting precious little of it.

“What we did was we gave a bunch of money back to people through tax cuts and we didn’t [pay for it],” says Stevenson. “Of course that’s going to provide some sort of short-term stimulus. Now the question is whether that encourages further investment in the economy that creates long-term growth.”

So is this a strong economy? Yes, with some big caveats. Does Trump deserve much of the credit? That’s a harder case to make, but it’s clear that he hasn’t derailed what growth we’ve had, which is an accomplishment of a sort.

The question, now, is whether growth continues. A recession would be devastating, as wage increases haven’t come near to making up for the pain caused by the last recession, and Republicans have taken fiscal firepower that could’ve been held in reserve for a future downturn and spent it on tax cuts and military boosts amid an expansion. It’s a risky strategy for the economy long-term, but it’s one that may boost the GOP’s chances in the next few elections.