Janet Yellen had a mystery in her hands in 2017. The economy was growing at the same time as something was dragging down inflation. Federal Reserve statisticians have looked at it and noted “a sharp drop in telecommunications service prices” which Ms. Yellen dismissed as an “idiosyncratic shift”. Indeed, it was the tip of a supply-side iceberg that was heading for the “secular stagnation” of economic decline so fashionable in Washington.
The Obama administration has enacted hundreds of new federal regulations protecting certain special interests from competition in the marketplace. Beneficiaries included large banks, litigation attorneys, big tech, large health insurers, trade unions and foreign drug manufacturers. President Trump promised to reverse it all, and he succeeded in many cases, sometimes with the help of a Republican Congress. Ms. Yellen’s statisticians witnessed the macroeconomic indicators of deregulation in March 2017. It was an integral part of the lifting of the ban on internet services labeled “net neutrality” and “privacy protection” lower speeds at lower cost or in return for offered larger user data.
In a series of changes, some half a century overdue, Mr Trump also helped remove government barriers to innovation and competition in healthcare. Democrats will tell you that the first drop in retail prescription drug prices in the calendar year in 46 years was just a fluke, and not the result of deregulation. Mr. Trump’s first diversion from the Food and Drug Administration turned out to be a warm-up exercise for Operation Warp Speed, which shocked the “experts” who predicted that a Covid-19 vaccine could not be approved in 2020.
Obama administration regulators waged a war on job creation, attacking them for their health insurance offerings, franchise practices, attorney-client relationships, and even season ticket compliance. Lower wages and higher consumer prices have depressed these employment and protectionist rules, particularly for low-income households.
The Fed and the Obama economic team have over-forecast growth almost every year from 2010 to 2016. When growth did not live up to their rosy predictions, Obama’s advisors blamed America for the poor economic performance. The country has lost its innovative spirit and has matured into retirement. In principle, it was incapable of anything other than lukewarm growth, emphasized the secular stagnationists.
Nobody in Washington predicted that small business optimism would rise to record levels in the election of Mr Trump, that real wages would rise again (especially for blue-collar workers), that business creation would hit 20th century highs, or that poverty and poverty would rise again The unemployment rate would fall rapidly, reaching record lows for Hispanics and African Americans. And lately, the same crowd has questioned the U.S. economy could climb out of the depths of the pandemic recession anytime soon.
Mr Obama said in 2012 that lowering the US corporate tax rate would create “good jobs with good wages for the middle class”. The next year, Obama’s Economic Council chairman Lawrence Summers reiterated the statement, calling it “as close to a free lunch as tax reformers will ever get”. Then when they realized that Mr. Trump would actually do it, they changed their tune. When the Tax Cut and Employment Act went into effect in December 2017, the economy predictably picked up pace, bringing millions of people into the world of work, while real business investment exceeded the Congressional Budget Office’s projections. Equally important, the tax law helped make capital investments more productive.
Mr Trump also opted for protectionism in international trade, adopting many of the same pieces the Reagan administration played softly, except that the “adversary” was now China rather than Japan and other East Asian tigers. There was a real cost of growth associated with tariffs, which are taxes in addition to all other taxes and regulations. However, they were limited in time and their rates were nowhere near high enough to offset the growth effects of deregulation and the 2017 tax law.
Although Mr. Trump’s economic policies were imperfect, they were far preferable to those of Mr. Obama, who punished work, attitude and success rather than rewarding them. Taking the opposite approach, like the Titanic, the Trump economy sank into worldly stagnation.
Mr. Mulligan is Professor of Economics at the University of Chicago and the author of “You’re Hired! Immeasurable successes and failures of a populist president. “He was Chief Economist for the White House Economic Advisory Council (2018-19).
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8