Writing in the Wall Street Journal, Princeton economist Alan S. Blinder calls it “The Obama-Trump Economic Boom.” This may be the best bad label for what may soon become the longest economic expansion in U.S. history. Anyone who regularly reads this column knows that I am a great skeptic in assigning credit for good economic times to particular presidents. But Blinder’s turn of phrase has the virtue of spreading the glory between two candidates.
It is not, of course, that presidents don’t wish to influence the economy. Whether they help or hurt, they are sure to claim paternity for good economic news. President Trump is no exception. He congratulates himself for the strong stock market (up $7.7 trillion since his election victory on Nov. 8, 2016, reports Wilshire Associates) and solid job creation (about 200,000 payroll jobs per month over his first two years).
Just how much praise Trump deserves for this performance is unclear. When reviewing the figures above, you should remember that in the last two years of the Obama presidency, the economy also generated 200,000 jobs per month.
As for the stock market, it rose $18.8 trillion from its low point in 2009 to Trump’s election, according to Wilshire. Given the different time spans, the comparison is inexact, but it emphasizes that the stock surge preceded Trump’s election.
More to the point, President Barack Obama delivered to Trump an economy that had overcome the worst psychological effects of the financial crisis and the accompanying Great Recession. This was not inevitable. In the dark days of late 2008 and early 2009, the talk of another Great Depression was not entirely fanciful. The responses of the Federal Reserve under Chairman Ben S. Bernanke and the Treasury Department under Secretary Timothy F. Geithner contributed significantly to the turnaround.
The case for Trump rests on his refusal to respect the conventional wisdom that the economy’s annual growth rate is now limited to a modest 2 percent, far lower than the post-World War II average of about 3 percent. He plowed ahead with a sizable tax cut of $1.5 trillion over a decade. I (and many others) opposed this as risking higher inflation and needlessly expanding already large federal deficits. But it gave the economy an extra shove that bolstered confidence and growth. Sure enough, the economy grew about 3 percent in 2018.
To all these factors must be added surprising developments that don’t fit in any purely partisan framework. Chief among these has been low inflation, which has remained at about 2 percent annually — identical with the Fed’s target. Why inflation has been so subdued is a mystery.
Economic textbooks warn that, as an economy approaches “full employment,” wages and prices will accelerate. Companies will increase wages to attract and keep workers; bottlenecks and shortages will raise prices. So far, this hasn’t happened.
In theory, full employment is the lowest unemployment rate consistent with stable inflation. If the unemployment rate dips below this level, wages and prices will accelerate. Customary full employment estimates are unemployment rates in the 4 percent to 5 percent range. But suppose the rate is 3.5 percent or 3 percent, reflecting an older workforce that values job security more than younger workers. (In January, the unemployment rate was 4 percent.) The trouble is that full employment can only be surmised by inflation’s behavior. It’s guesswork.
Regardless, low inflation has kept interest rates down, and low interest rates have kept stock prices up. That’s another development beyond the control of presidents.
The current economic expansion began in mid-2009 and has already passed the 1960s’ boom for longevity (106 months, from 1961 to 1969). It is now approaching the record, the 1990s’ boom (120 months, from 1991 to 2001). Princeton’s Blinder cites these threats to the expansion: a trade war with China and others; a stock market crash; an unexpected jump in oil prices to $90 or $100 a barrel (it’s now trading in the mid-$50s); a collapse of consumer or business confidence.
Realistically, Blinder doubts that any of these will soon derail the recovery. “My bet is that the current expansion will sail through June, setting a new record,” he writes. The biggest threat, he argues, is a long shot — a constitutional crisis involving Trump that destabilizes the economy.
There is, however, one overlooked danger: The two long expansions of the post-World War II era — the ’60s and the ’90s booms — were both followed by tumultuous crises and subpar performance. After the ’60s boom, the economy succumbed to rising inflation, which peaked at about 13 percent and demoralized millions of Americans. The ’90s tech boom ultimately led to the devastating 2007-2009 financial crisis and Great Recession.
It’s almost as if there’s an unwritten law requiring that the big booms be succeeded by big busts. With luck, maybe history won’t repeat itself.
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