Peter Morici: Trump economy is doing fine, to the chagrin of the dismal science
They don’t call it the dismal science for nothing.
Remember Paul Krugman predicting the apocalypse in the wake of Donald Trump’s election. And now with the economy clipping along at nearly 3 percent, deregulation and lower taxes reviving manufacturing, and consumers confidently spending again, some two-thirds of private-sector prognosticators see a recession beginning as early 2020.
The new doomsday scenario offered by the Congressional Budget Office and others is that the economy is getting only a temporary jolt from tax cuts and increased government spending, and aggregate demand will tail off.
Much of this has to do with political bias in a profession where it has become fashionable to call the president a demagogue or simply ignorant and irresponsible, and to view with hypocritical disdain any goal for policy he sets.
It is one thing to dislike him but it’s another thing to ignore years of professional research that predate his ascent. For example, forecast of a coming recession denies that lowering corporate taxes provides more than a temporary jolt to cash flow — it also lowers the cost of capital in the United States as compared to other economies.
Nonpartisan research predating the Trump candidacy indicates the 15 percent cut in taxes on business profits enabled by corporate reforms should increase investment between 7.5 percent and 15 percent. And in the current environment of deregulation, the higher figure should more closely apply.
Look for all that to boost growth in 2019 if something else bad does not happen.
In the near term, little danger is apparent from overheating. Unemployment may be down to 3.8 percent but wages are not taking off. Simply, a good number of healthy recruits remains available among those who became discouraged during the Obama years, a stronger dollar is keeping competitive imports inexpensive, and robotics and artificial intelligence are kicking in.
Fed Chairman Jerome Powell, unlike most professional economists, does not let what personal feelings he has toward politicians cloud his thinking. If the numbers continue to show core inflation subdued, he will recognize the Fed can do little but wreak havoc by boosting interest rates too quickly or too much.
As for a trade war, economists can’t get over the fact that free trade did not work out for the vast swath of interior America, because the Chinese hardly play by free-trade rules. A poorly conceived American response to China’s aggressive mercantilism could be devastating but doing nothing would be even worse. Look at the corrosive consequences of trade-driven unemployment, social decay and opioid addiction in America’s rural communities and small cities.
The trick is to penalize China in ways that make retaliation difficult. If I have reservations about Trump, it is that his trade team listens to few outsiders because they are too busy arguing among themselves.
Administrations that don’t listen are nothing new. Barack Obama was in constant broadcast mode, and his economists could never be accused of having open minds.
There is a resiliency about America when the government gets out of the way. Bank on that.
History has been very unkind to those that short sell the United States of America — credentialed experts included.
Peter Morici is an economist and business professor at the University of Maryland.