Sebastian Mallaby, author of “The Man Who Knew: The Life & Times of Alan Greenspan,” is the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations and a contributing columnist for The Post.
President Trump asserts that the U.S. economy is a disaster and that he alone can fix it. The truth is that the U.S. economy is doing better than most Americans realize, and activist attempts to fix what ain’t broke are one of the gravest threats to it. What’s at stake is not simply that the president is vague or wrong about the facts. It’s that bad facts make for bad policy.
Since the second quarter of 2009, the U.S. economy has expanded consistently for almost eight years, a record that is already better than six of the 10 expansions since the 1950s. In contrast, the previous recovery, starting in the aftermath of the 2001 terrorist attacks, lasted only six years. The Obama-Trump expansion will soon overtake the Reagan-Bush expansion of the 1980s, making it the third longest of the post-war era.
“Jobs are pouring out of the country,” Trump complained at his news conference Thursday. Well, this recovery has created more than 15 million jobs, cutting the unemployment rate from 10 percent to 4.8 percent, which is considerably below the long-run average unemployment rate of 5.8 percent, the Goldman Sachs Investment Strategy Group observed in a thoughtful report in January. Adding in the “underemployed” — that is, part-time workers and those who have given up looking for jobs — does not alter this verdict. That broad measure of unemployment has fallen from 17.1 percent to 9.4 percent, taking it below the long-run average of 10.6 percent.
With the economy at near full employment, workers have felt the benefit. The Federal Reserve Bank in Atlanta reports that wage growth has picked up to around 3.5 percent per year, up from less than 2 percent at the start of this decade. The Census Bureau reports that median household income rose in 2015 at the fastest rate on record . The number of people living in poverty fell 8 percent.
It’s true that the steadiness of the recovery has not been matched by its speed. Indeed, growth since 2009 has been slower than any other post-war recovery. But this is not as damning as it sounds, and attempts to push the growth rate up could quickly cause worse trouble.
The first reason for slow growth is actually welcome. In some past recoveries, growth was faster because it exceeded the sustainable rate — either this resulted in inflation, forcing the Fed to raise interest rates and induce a recession, or it caused an asset bubble that burst destructively. The current recovery, in contrast, shows no sign of flagging. The main cloud on the horizon, the Trump administration should note, is that a dual stimulus of tax cuts and infrastructure spending could drive growth above its sustainable rate — and that the Fed, perhaps newly populated with Trump appointees, might fail to put the brakes on fast enough.
The second reason for slow growth is that recoveries after a financial crisis need to be gradual. It takes time to pay down all those bad debts accumulated during the mania. The good news is that U.S. households have been saving conscientiously, which helps to explain relatively low consumption and slow growth but is positive for the future. Seven years into the typical post-war recovery, U.S. households had increased their debts by 4.8 percentage points of gross domestic product, Goldman reports. Seven years into the current one, they have cut their debts by 18.4 percentage points. In this sense, too, the modest pace of the recovery has actually been healthy.
The third reason is demographic. Between 1950 and 2000, the U.S. labor force grew by 1.6 percent per year; in the next few decades, that rate is expected to be 0.6 percent, according to a study by the Bureau of Labor Statistics. There are constructive ways to address this: raise the retirement age, invest more in retraining of discouraged workers who are tempted to drop out, welcome more young immigrants. A clampdown on immigration won’t help matters.
Finally, the fourth reason is that productivity seems to be advancing sluggishly. But here, too, overreaction is dangerous. Official measures of productivity exclude the value to consumers of cool new stuff that is not priced: Internet search, free video tutorials, navigation software. Moreover, productivity growth slows and accelerates in unpredictable cycles, making gloomy forecasts unreliable. Railing at the poor performance of the economy, and using that allegedly poor performance to justify rash populist measures, is to address a probable non-problem by causing a real one.
The United States has a list of specific economic challenges: inequality of opportunity, declining male labor-force participation, oligopolistic concentration in some sectors. But there is no general economic crisis to justify a radical attack on the status quo. Clamping down on immigration won’t cut unemployment, which is pretty low anyway, but it will damage dynamism and growth. An attack on U.S. trading partners won’t cut the trade deficit, which is to a large extent a function of the dollar’s reserve-currency status, but it will disrupt supply chains, damaging growth further. If he really wants to make America as great as it can be, Trump must first acknowledge that it is pretty great already.
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