Why the US economy is so “perfect”
From the Febraury 2020 print edition
As I’m writing this column, the impeachment trial of Donald Trump has just concluded. I’m submitting this as the final verdict is being rendered, and as expected he was found “not guilty”. And it has almost nothing to do with what he may or may not have done. The reason why Trump was found “not guilty” is because of the state of the American economy. The Republican Party stayed loyal to him because of that. If the economy were weak, they’d be joining the Dems and plunging daggers in his back.
Donald Trump famously described his telephone call to Ukrainian President Volodymyr Zelensky as “perfect.” I’m not going to comment on that. I’ll leave that to the professionals on CNN and Fox News. But what I do feel comfortable offering my opinion on is that the United States economy is as close to “perfect” as can be imagined.
When I was attending university in the late 1970s, there was a metric known as The Misery Index. You took the unemployment rate and added the inflation rate and voila – there’s the Misery Index! Back then, any number less than double digits was almost unimaginable. Based on current numbers, with unemployment at 3.5 per cent and inflation running at 2.1 per cent, the Misery Index for 2019 was 5.6 per cent. Let me hearken back to 1978: Inflation was running at nine per cent and unemployment was six per cent. Like Casey Stengel used to say: “You could look it up!”
This president is a polarizing figure. And what the media is missing, it seems to me, is a proper discussion about why the economy today is as truly spectacular as it is. Because on top of everything else, the stock market is hitting record levels, day after day, which is a vote on the future. As good as things are right now, people are voting with their wallets that things will be even better in the future.
A modern economy is complex. However, when I look at the current Trump presidency, it seems to me that in about this order, here are the reasons why the US economy is hitting on all cylinders:
- Oil and gas development and energy self-sufficiency;
- Deficit spending combined with low tax rates;
- Rollback of the regulatory state; and
- Stricter rules on immigration.
I’ll take these one by one.
The Trump administration looks at oil and gas much differently than the previous administration. In November 2017, the US produced 9.7 million barrels of oil per day. Move forward two years, and now it’s 11.7 million barrels. Let’s do a bit of arithmetic together. A pretty good approximation for the price of oil is $60 per barrel. If we multiply 2,000,000 extra barrels times the price of $60 times 365 days in the year, and then divide this evenly among the estimated 325 million Americans, this is about $135 per man, woman and child. Then there is one more factor: Given that the US now produces more than it consumes, it is essentially energy self-sufficient, which provides a greater level of certainty for all domestic economic actors.
In 2017, the first true year of the Trump presidency, the federal deficit was $665 billion. For 2019, it is projected to be $1.092 trillion, an increase of $427 billion. Again, time for a bit of arithmetic. You take that change, divide by the number of citizens, and it’s about $1,300 per man, woman and child. There will be a day of reckoning, sooner or later, but it’s hard to see when that day will be.
Quantifying the rollback of regulations is more difficult. That being said: Anyone who has tried to get a business off the ground (and here I speak from personal experience) knows that there are myriad hoops that you have to jump through, and at some point people say: “Enough is enough!” Regulations are stultifying to small business in particular and frequently provide an unfair competitive advantage to larger entities … entities that frequently donate “generously” around election time.
Immigration and, in particular, illegal immigration, is one of the most controversial parts of the Trump administration. But you would have to be willfully ignorant not to note that there has been a direct connection between the crackdown on the border and the positive employment impact for lower-skilled workers. Because lower-skilled workers are disproportionately visible minorities, there is a very good argument to be made that Donald Trump is the best president for minorities in my lifetime and, in fact, much better than his predecessor, as much as Trump’s detractors hate to hear it.
It would be wonderful if the Fifth Estate would spend even a fraction of the time figuring out why the American economy is currently hitting on all cylinders, with the intention of understanding which economic policies lead to steady, non-inflationary growth … something that everybody on both sides of the political aisle has to appreciate.