Why is the economy growing?

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The US economy is heating up. Trump supporters credit the President for the growth, while many on the left struggle to accept, understand, and explain a turnaround they claimed we’d never see. In fact, many Trump detractors predicted a stock market crash and a deep global recession shortly after the election. President Trump deserves some credit, but the situation is a bit more complicated. There are three things to keep in mind going forward.

  1. Don’t get confused about trade restrictions. From an economic perspective, tariffs always impede growth by increasing prices. Some protectionists are actually claiming that current economic growth is evidence that “tariffs are working.” The direct impact of tariffs is—and always is—negative but is currently of modest consequence given policy improvements in tax, regulation, and other arenas. Tariffs and threats of tariffs might be effective negotiating tools with China, but they don’t promote economic growth. Reducing and eliminating tariffs across the board should be the end game and will drive long-term prosperity.
  2. Cronyism is alive and well. I’m all for “draining the swamp,” but there’s a long way to go and a right way to do it. Consider Tesla. Elon Musk’s ongoing extraction of billions in taxpayer subsidies requires support from our politicians. The recent tax reform passed by Congress made some incremental improvements, but the current tax code remains a redistribution haven for those seeking to circumvent market discipline. There is still a shortage of courage and political will in Washington.
  3. President Trump had an easy act to follow. President Obama abandoned the idea of economic growth early on and was intent on demonizing business and expanding wealth redistribution for eight years. President Trump and Republican majorities in the House and Senate have delivered a renewed outlook and a number of better policies. The change has been welcome, but I’m convinced the economy would have improved even if the Republicans had done nothing. Put another way, the current growth is less about Republicans in power and more about Democrats out of power.

I’ll repeat: The President deserves some credit, but let’s no go overboard. The real test is ahead of us. Economic growth increases the tax coffers and creates political opportunities to fix long-term fiscal problems. Downsizing the welfare state isn’t so threatening when 401k accounts are growing and jobs are plentiful, but doing so still requires courage. We’re not there yet.

4 Comments

4 Comments

  1. DJT16  •  Sep 1, 2018 @9:10 AM

    Ok, Obama was not a tough act to follow. But it’s a Trump recovery plain and simple. Tarrifs keep Americans working. The swamp is draining.

  2. w.j  •  Sep 1, 2018 @9:35 PM

    Trump’s policies are not perfect, but more would have been accomplished with a willing congress.

  3. darrell  •  Sep 2, 2018 @5:28 PM

    The blog is right. Give credit where credit is due. Trump and the republicans have some work ahead of them. They didn’t get rid of Obamacare, do anything about social security, or cut spending.

  4. jinx  •  Sep 7, 2018 @9:41 PM

    Now Obama is attacking Trump and claiming credit for the boom. BO is full of himself and trying to invent a legacy. This is just more evidence that our President should get a lot of credit. Deserved!