Aside from tax cuts, President Trump and his Republican supporters tend to boast the most about deregulation and its wondrous effect on the economy. There are two problems with this:
First, the economy is not perceptively better than it was under President Barack Obama. On jobs, Trump is actually doing slightly worse. As CNN explained: “Trump wasn’t in office yet when the Labor Department collected the data used in January 2017 jobs report, so for the sake of comparison it makes sense to exclude the first month of the year. But in the remaining 11 monthly jobs reports, employers added 1.84 million jobs. . . . That compares to 2.09 million jobs added in Obama’s last 11 months in office.”
On gross domestic product, or GDP, the economy grew at 2.3 percent in 2017; better than 1.5 percent in 2016 but worse than growth 2010, 2014 and 2015. Given his reckless fiscal policy, our debt will expand considerably, raising the concern that private lending will be crowded out and interest rates will increase. The Post reported: “The White House projects a large gap between government spending and tax revenue over the next decade, adding at least $7 trillion to the debt over that time. In 2019 and 2020 alone, the government would add a combined $2 trillion in debt under Trump’s plan.”
Second, as for deregulation, several studies have shown there is less than meets the eye. Ironically, Goldman Sachs (the former employer of several senior members of Trump’s economic team) is the latest source of analysis confirming less than impressive results, Jim Pethokoukis of the American Enterprise Institute reported:
First, the bank asked its analysts what they are seeing on the ground. And so far not much: “Today, our equity analysts in non-financial sectors report that deregulation has largely taken a back seat to tax reform and has had only a modest impact on economic decisions so far.”
Second, the bank looked at whether job growth and capital spending have been stronger in sectors and companies that were more highly regulated before the election. Goldman: “We find no evidence that employment or capital spending accelerated more after the election in areas where regulatory burdens are higher.”
Third, to try and get a more forward-looking view of deregulation — hey, it’s only been a year — Goldman looked at stock market performance. But not much there, either: “We find a roughly 0 correlation between regulatory burdens and post-election returns among the full set of S&P 500 companies, consistent with our earlier results based on macroeconomic data.”
Goldman concludes: “Overall, our results suggest that non-financial deregulation has had a limited impact on the economy to date. This is not that surprising for several reasons: the estimated costs of regulation are not that high; implementing regulatory change even by executive action can be slow and difficult; and some promising targets for change largely involve state and local rather than federal regulation.” In other words, the deregulation “miracle” has been underwhelming, perhaps because simply counting the number of rules doesn’t tell us whether Trump’s regulatory policy is smart (adding to growth), meaningless (wiping out regulations that no longer garner any attention) or counterproductive (favoring one industry or employer over another).
In short, we might get a whole lot more growth from expanding trade markets, increasing immigration among the highly skilled, and investing things such as a robust infrastructure plan (Trump’s is anything but), research and development, and worker training, etc. Unfortunately, after having blown a hole in the budget with an unnecessary tax cut benefiting the rich and being caught up with military spending (a positive step, in my estimation), there is very little left over for pro-growth investments of this type. Trump’s tax cuts and deregulation efforts may wind up — thanks to debt, rising interest rates and stock volatility — being less successful at stimulating growth than a policy of revenue neutral tax reform, prudent investment in our workforce, bold new trade deals and a reinvigorated immigration system. (Unfortunately, we don’t get to run a perfect simulation to make that comparison.)
The Trump “legacy” may wind up being anemic growth, more extreme income inequality, higher debt and higher interest rates. We could well find that Trump has made the rich even richer without putting in place the building blocks to sustain economic growth and competitiveness. Voters may have wanted populism, but they may get the worst aspects of a plutocratic economic approach.