Good Economic News Is Good for Clinton and Bad for Trump

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Posted in: Politics

There was great economic news last week. Truly great news, as I will discuss below. Because this is an election year, however, it is impossible to discuss news of any kind—good or bad, on economics or any other topic—without thinking about how it affects the presidential candidates’ political fortunes.

In this case, last week’s economic news was a huge boon for Hillary Clinton and creates major problems for Donald Trump. That being said, the news was mostly overshadowed by other issues, especially the explosions in New York and New Jersey.

But even so, Trump and other Republicans held to form and claimed that the economy is in terrible shape. The further problem for Trump, however, is that the only genuinely disappointing news on the economic front is that inequality is not getting any better. And his policies would unequivocally make inequality worse.

That problem, however, affects Trump’s entire party, not just his own candidacy. Because Trump’s economic ideas are simply lifted from the well-worn Republican playbook, he is doing what Republicans have done for the past few decades: Ignore reality and push their ideological agenda.

Ideology and Pragmatism: Republicans Have Abandoned Reality in Favor of Dogma

In the very recent past, nearly all politicians could reasonably be described as problem solvers. Whether or not they cloaked themselves in the garb of the self-sacrificing patriot, politicians promised to fix something that was wrong or to stop a mistake from being made in the future. The whole purpose of being a public servant was to avoid or fix errors in a very practical sense.

We might think, therefore, that politicians would be the ultimate pragmatists, looking for evidence to help craft solutions to the problems that matter most. One of the fascinating aspects of watching Republican politicians over the last generation or so, however, has been their transformation from trying to solve problems to deciding to ignore evidence in order not to disturb their pursuit of evidence-free dogma. If evidence does not fit that dogma, Republicans either ignore or distort the evidence to fit their storyline.

There is, of course, no particular reason why it is the American right that should tenaciously use any new incident to support their favored policies. Ideological rigidity is a danger for everyone, especially for groups of people who are trying to maintain some coherence in their message. But from climate science to evolution to voter fraud, it is Republicans in the last decade or so who have decided that ideology must be advanced at the expense of reality.

In economic policy, that means that Republicans always favor tax cuts, no matter the problem at hand. Former House Majority Leader Tom DeLay, before his “Dancing With the Stars” days, famously said at the beginning of the Iraq War in 2003: “Nothing is more important in the face of a war than cutting taxes.” This country had always increased taxes to pay for wars, usually as part of an effort to make everyone feel that they were sacrificing for the good of the country, but not anymore.

It no longer matters to Republicans, therefore, what economic news might arise. Whereas Hillary Clinton would adjust her policy proposals if, say, the economy were to fall back into a recession, Republicans would simply say, “More tax cuts!” Which is just what Trump is saying now, when the news is good.

This obsession is, again, hardly limited to Trump. A few years ago, there was some discussion in the press of the growth in the economy after President Bill Clinton signed a law to increase taxes progressively in the 1990s. One Republican policy flack responded that the reason the economy grew was that everyone knew that taxes would have to come down later, so they were excitedly preparing for that inevitable tax cut.

Of course, this would mean that actual tax cuts should harm the economy, because everyone would similarly expect that taxes would later be increased, at least by this logic. But Republicans only liked that logic in one direction, not the other.

For Donald Trump to be pushing a long-discredited policy of trickle-down tax cuts, therefore, should not be surprising. Whoever won the Republican presidential nomination, from Ted Cruz to John Kasich and everyone in between, would have done the same.

The Absurdity of Trump’s Economic Bluster

Neil Irwin of The New York Times provided an excellent analysis of Trump’s most recent speech on economic issues, where Trump claimed that he could create 25 million new jobs over the next decade while increasing the growth rate of GDP to 3.5 percent (and to four percent thereafter). Irwin was characteristically restrained in his language, but his conclusion was both unmistakable and correct: This is ridiculous.

Actually, Trump’s claim is surprisingly not the most outrageous in this regard. Republican presidential reject Jeb Bush claimed that his plan would permanently increase growth to four percent annually. So when I say that Trump is worse on economics, he is not categorically worse than other Republicans, even supposed moderates like Bush. But Trump does manage to make some outrageous claims, as I note below.

Why are Trump’s claims about his magical economic elixir so implausible? They simply fly in the face of reality. This is not a matter of theory (although even the economic theory debates have become rather one-sided wins for liberals in the past few years). Just as two plus two does not equal seventeen, Trump’s self-serving forecasts cannot be accurate.

It sounds great to say that there will be 25 million new jobs in the future. But for that to matter, there have to be 25 million new workers to fill those jobs. As Irwin points out, government forecasts indicate that current trends would see employment increase by about seven million people in the next decade. That leaves us 18 million bodies short.

Where to get those extra workers? We can pull more people back into the labor force, but after accounting for the people who do not want to work (because they are in school, or are happily retired, or are disabled), the best we might expect to find is another five million workers—if everything went right.

Again, where are we going to find the additional workers? The obvious answer is also obviously a joke: Trump could increase immigration to allow foreigners to take American jobs. In fact, Trump says that he will do the opposite, deporting millions of workers, making it necessary to find even more replacements from among the current U.S. population.

To be equally fanciful, we could imagine that a Trump-led government will encourage Americans to have more American babies. Even with his inadequate paid-leave program, however, higher birth rates would push up the cost of his transparent attempt to court female voters.

More to the point, we are talking about a ten-year forecast. Unless Trump plans to repeal child-labor laws, having a big cohort of 9-year-olds in 2026 would not solve the problem.

The only remaining strategy would be to force people back into the labor pool. Taking away retirement benefits would surely make some people stay in their jobs longer, but younger people would hardly be pleased to be moving into an economy in which the top jobs are clogged with older people who cannot retire.

Moreover, forcing ten or twenty million older people to stay in the labor force would surely reduce their productivity, as physical and mental acuity inevitably slips over the years.

And this runs up against the other problem with Trump’s self-congratulatory economic claims, because we will not have significantly higher economic growth without increasing each worker’s ability to produce goods and services.

Irwin points out that, even if we actually found all 25 million workers that Trump’s plan requires, his claims would also require per-worker productivity to more than double over the next ten years, from 0.9 percent annual growth since the beginning of the Great Recession to 2.2 percent annual growth under Trump’s policies.

Irwin generously describes that as “plausible,” because there was a time period in U.S. history when productivity grew at an average rate of 2.4 percent. The problem is that the time period to which he refers is 1950-73, the decades encompassing the postwar boom and ending with the first oil crisis.

(And remember, Trump thinks that four percent annual GDP growth is achievable after the first ten years of 3.5 percent growth, which would require productivity to grow by an additional half-percent per year, moving it above even the Golden Age of U.S. economic growth.)

In the four-plus decades since 1973, the inevitable decline in U.S. global economic dominance set in. Europe and Japan were in shambles in 1950, and it took a full generation for them to become healthy trading partners. We are not going back to 1950, no matter how badly Europe and the U.K. are currently being managed.

Remember also that Trump wants to tear up trade agreements, which means that we would have to grow based on our own internal economic fundamentals, rather than trying to export our way to prosperity. Finally, even the return of cheap oil has not increased U.S. productivity growth.

In short, nothing about Trump’s economic forecasts withstands numerical scrutiny. That is, even if we were to believe that his policies would have the desired effects, those effects would simply be much smaller than Trump’s forecasts require.

The bigger problem is that the Republican mantra that Trump has enthusiastically endorsed—tax cuts for the rich, and slashing regulatory protections for consumers, workers, the environment, banks’ customers, and so on—will not have the desired effects. Tax cuts and deregulation are not a cure-all, and in fact they would make matters worse.

We have experimented repeatedly with tax cuts for the rich, and the results have been the opposite of what Republicans claim. Blaming regulations is simply a default move by Republicans to allow businesses to inflict the costs of their mistakes on the public. Saying that these wish-list items will improve the economy is a matter of faith, not economics.

Trump Has No Response to Good Economic News, Except to Repeat What He Says About Bad News

Which brings us back to the good news. The headline-grabbing economic story last week was that median household income in the U.S. grew by 5.2 percent in 2015, as reported by the Census Bureau. That is big news in and of itself, but the rest of the report was even better.

In particular, for the first time in many years, the economy’s growth was widely shared, rather than going almost entirely to the richest people in the country. Decades of stagnation for middle- and lower-income families finally ended, at least for a year. The number of people living in poverty dropped by a historic amount, and the number of people without health insurance also fell.

That does not mean, of course, that our economic problems are solved. The Economic Policy Institute released an analysis of the report, noting among other things that people “in the top 5 percent are the only income group to have regained income levels enjoyed prior to the recession.” But if 2016 is as good as 2015, at least the middle class will finally have moved above where it was in 2007, before the recession hit.

Even so, there is no guarantee that the good trends will continue. An even greater concern is that the growth in incomes last year was driven mostly by job growth, not wage growth. As the analysis above shows, there is a limit to how many more people can be brought into the labor force.

That means that the continuing imperative is wage growth, that is, allowing people to earn more without forcing them to work more hours to do so.   This is where presidential politics reenters the picture.

Donald Trump’s non-response to the good news was to claim that things are horrible, and that poverty is still a problem because Democrats are the mayors of most major cities. This ignores the fact that Republicans run most state governments, and they are increasingly willing to undo local Democratic efforts to improve matters.

Significantly, the other problem with Trump’s response is that he continues to equate poverty with urban life, which connects to his hellish version of life for African Americans. Rural poverty is a big issue as well, however, and although poverty is especially a problem for minorities, it is hardly limited to nonwhites.

More to the point, Hillary Clinton now has two great talking points. First, she has already said that voters should choose her to keep the momentum going from the Obama Administration. She can now say: “Things are finally getting into high gear. Don’t let Trump take it all away just when it’s really starting to work.”

Second, Clinton can and should remind voters that she has been promoting policies to increase wages all along. Increasing the minimum wage would help not just the lowest-paid workers, because there is a spillover effect along the spectrum of wages whenever the minimum wage is increased. Clinton is also pushing policies to make it easier for workers to negotiate for higher wages, in particular by reversing decades of anti-union policies.

To be sure, no president or presidential candidate can say that they can definitely change the course of the economy. But if Republicans want to blame every bad thing that happens on Obama, Democrats can certainly respond in kind by taking credit when things go well.

Most importantly, the two big problems facing the U.S. economy going forward continue to be low wage growth and overall inequality. Trump has no plan to address the first problem, and his proposals (to the extent that we can even figure out what he really wants to do) would radically worsen the second. Clinton was already on the right track regarding both issues. That is good news for Democrats.

  • Brett

    Wow, unemployment is stagnantly high at 5% the past eight years (remember when it reached that level for a brief period during President George W. Bush’s first term (as he dealt with the small recession left from President Clinton) and liberals went nuts?), millions have reportedly given up looking (the unemployment rate only counts those out of work for a certain period of time), real wages are down, and this author thinks that’s a good economy?? A Hillary Clinton presidency, as she has proclaimed, would only bring more of the same weak economy, helped by her plan for even higher taxes (when are enough taxes enough?) and an even bigger federal government (how big must it be, the national debt is at a crushing $18 trillion and counting). And report after report has shown that a higher minimum wage unfortunately comes at a price – jobs are lost (it makes sense, small businesses are not able to pay the increase so they must cut back to survive). And there is momentum from the Obama administration on the economy, Mr. Buchanan? You can’t be serious. Further, if there are Democratic efforts to improve life in big cities, it has been going on for decades as Democrats have been the ruling party in big cities for decades now (look at Chicago, it is a mess with high crime, high taxes, and high government debt), if the efforts were valid, they would’ve made things better long ago, but all they are doing is either keeping the unfortunate status quo, or making them worse. Further, to claim that increasing jobs is a bad thing is nothing less than insane, and that taking more money from citizens with ever higher taxes is an economic improvement? Wow, that is spin gone wild.

  • Frank Willa

    Professor, thank you for your analysis; to those who are interested in formulating the view of the election based on facts this is on point. in my view the republican ideology is the “trickle down” economics- those in charge see a society where are a very wealthy few, a small portion who are somewhat reasonably rewarded, a majority that struggles, and a some at the bottom that just get left out. They use the narrative that everyone can make it and if they do not it is due to not really trying, so they deserve to the misery they have brought to themselves. It seems to me their ability to sell this, at least in part lies in understanding how public perception is formed. In the 1950s advertising agencies began to “poll” the public for purposes of seeing what messages would sell to their clients’ prospective customers. And more significantly, how to shape perceptions and create a desire to purchase where there was none before. As I understand it the Ad agencies hired a great many PhD. Psychologists to go to work on their behalf and use all that understanding in formulating ad campaigns. As an example, they found to most people that a car was just transportation, but also they found that if they put a panache and an associated personal status to a particular brand the customer would want something they did not before and be willing to pay a premium to get it. So, no longer was a Chevy good enough, you had to get the Buick so you could feel better about yourself and your neighbors would look up to you. There is a lot of reference to the “branding” in political discourse these days. In my view many of the techniques developed in advertising as television came of age, which brought about a “mass media” culture- that is one where everyone in the country knew about the same things at the same time, combing the lessons learned by the psychologists about people wanting to “fit in, to belong, be a part of things, be up with and in on new trends” are being used to create support for the republicans. The evidence free dogma is the only way the republicans can sell their version of society – a modern day economic feudalism – and in my view they know exactly what they are doing.