US President Donald Trump. Picture: REUTERS/KEVIN LAMARQUE
US President Donald Trump. Picture: REUTERS/KEVIN LAMARQUE

Joe Biden has argued that President Donald Trump didn’t so much build a strong economy as inherit one. It’s a good line — but it ignores the successes, at least before the pandemic, of Trump’s unconventional policy. If Biden is elected president, he should continue Trump’s economic approach rather than returning to Barack Obama’s.

Between December 2009 and December 2016, the unemployment rate dropped 5.2 percentage points, from 9.9% to 4.7%. By December 2019, it had fallen another 1.2 percentage points, to 3.5%. A cursory look at those numbers might lead you to believe that the improvement under Trump was at best a continuation of a trend that began nearly a decade earlier.

It’s necessary to place those numbers in context. By 2016, officials in the US treasury department and at the Federal Reserve had concluded that the economy was at full employment and that further improvement in the labour market was unlikely.

This was in line with the Congressional budget office’s guidance that further declines in the unemployment rate would push the economy beyond its sustainable capacity.

Once in office, Trump ignored this consensus. He implemented a programme of tax cuts, spending increases and unprecedented pressure on the Fed to cut interest rates to zero and keep them there. Trump’s goal of 3% growth was derided as delusional, while a bipartisan chorus of commentators declared his policies reckless and irresponsible.

They were anything but. Not only did the unemployment rate continue to fall, but the percentage of Americans aged 25 to 54 either employed or looking for a job saw its first sustained rise since the late 1980s. This inflection point changed the character of the labour market.

In 2016, real median household income was $62,898, just $257 above its level in 1999. Over the next three years it grew almost $6,000, to $68,703. That’s perhaps why, despite the pandemic, 56% of US voters polled last month said their families were better off today than they were four years ago.

The key to that number is the breadth of Trump’s expansionary agenda. Republican presidents have typically focused on tax cuts, particularly for businesses, with the idea that they will encourage an increase in investment and wages. Democrats have tended to seek spending increases, often with the hope that they will stimulate the overall economy and increase job growth.

Presidents of both parties have traditionally left interest-rate policy to the Fed.

Trump broke the mould by aggressively battling on all three fronts. He also sought to increase jobs in manufacturing and agriculture by pursuing a series of trade wars. (Most economists, from across the ideological spectrum, think this policy backfired.) Nonetheless, if one had to choose between Trump’s three good policies plus trade wars, or the more modest economic policies of his predecessors, the easy choice is Trump.

Ideally, a Biden administration — which looks increasingly likely — would keep Trump’s three growth-enhancing policies and jettison his trade initiatives. What is crucial, however, is that it not believe its own campaign rhetoric and be satisfied with merely returning to the policies of the Obama administration.

Trump proved that an aggressive growth strategy can improve the fortunes of the average American family. That strategy should continue.

Bloomberg

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