Power of Story Send a Tweet        
- Advertisement -
OpEdNews Op Eds

The Economy has been Doing Well

By       Message Seymour Patterson       (Page 1 of 1 pages)     Permalink

Related Topic(s): ; ; ; ; , Add Tags  Add to My Group(s)

Well Said 1   Supported 1   Interesting 1  
View Ratings | Rate It

opednews.com Headlined to H3 8/15/17

Author 76783
- Advertisement -

President Trump and his surrogates have been bragging about how well the economy has been doing since he took office. This includes taking credit for the record-breaking stock-market performance and the low unemployment numbers. The credit for these two economic markers on its face must go to the party in power. Mr. Trump is the president and so good economic numbers will be attributed to him--i.e., executive actions reducing regulations, talks about repealing and replacing the ACA, talks of tax reform, and the promise to build a wall to stem the unlawful entry of foreign nationals into the U.S.

Three things are concerning about the attribution of credit for the current performance of the economy. First, like credit for the Carrier assertion of saving jobs that were destined to Mexico. However, some Carrier jobs are still going to Mexico. (See CNBC.) Or the retaking of Mosul in a protracted effort that only recently came to fruition. The similarities to these two events and the performance of the stock market and the declining jobless rate illustrative of a mindset. For instance, the Dow Industrial Average (DIA) climbed above 22,000 on August 2, 2017, continuing to break records and benefiting everyone who has invested in the market. But the stock market has been rising relentlessly over the past seven or so years. "The Dow hit its pre-recession high on October 9, 2007, closing at 14,164.43. Less than 18 months later, it had dropped more than 50 percent to 6,594.44 on March 5, 2009." At the close of 2016 (December 27, 2016), the DIA was near 20,000: "The Dow Jones Industrial Average (DJI) rose nearly 0.1%, to close at 19,933.81." Nothing is gained by discounting the importance of this 10 percent rise in stock value from January to August 2017. This represents an annualized growth rate of 17 percent. This performance is superior to many alternative assets like treasuries CDs, banking savings account, and bond annuities that yield at most 4 percent. However, the stock market performance did not start in January 2017.

The current unemployment rate is 4.4 percent. It was 4.7 at the end of the previous administration that was accused of fabricating the jobless rate as being "totally fiction." In the depths of the Great Recession, unemployment the rate was 9.9 percent--it took eight long years to cut the unemployment rate in about half. The 0.3 percent improvement in the unemployment numbers has not been attributed to any sleight of hand, although the Bureau of Labor Statistics has not reformed its methodology for the current administration.

The rise in the stock market and the improvement in the unemployment rate may have caused a rise in consumer confidence, although it might be hard to trace this to any concrete thing the present administration might have accomplished in the past seven months. Perhaps, reversing the regulatory policies of the previous administration may accelerate employment, influence stock-price performance, and consumer confidence. It is not an easy task to find causal nexus in the absence of legislative achievement. Rolling back consumer-safety regulations, environmental regulations, and financial-markets regulations will reduce the cost of doing business. Therefore, businesses will hire more people and increase investment. Announcing a tightening of immigration policies will likely reduce foreign-labor competition in the labor market, even if you allow for the possibility that the jobs foreign workers do are shunned by Americans. Yet, even without these measures, the stock market was breaking record levels and the unemployment rate was steadily approaching full employment. Again, any assertion of causality between the government rhetoric and economic performance is difficult to substantiate empirically. Understandably, the current administration will seek to take credit for good economic performance.

- Advertisement -

The benefits (more jobs and higher wages) that accrue to American workers from changes in immigration policy aren't costless. American taxpayers will pay for the wall; i.e., fence (not Mexico). America and Mexico seem to have come to terms with this reality--Mexico will not pay for the wall (i.e., steel border fence). The cost of the border fence has been estimated at $15 billion; it could exceed this amount. Building the fence will create jobs as will infrastructure investments and tax cuts. The long-term effects of each of these variables will be hard to appraise a priori. The fence construction and maintenance will produce jobs and cost $49 billion over its expected life of 25 years according to The San Francisco Gate.

Trump's executive order to repeal Dodd-Frank has been good for bank stocks. Banks will take greater risks and investment advisers will not have to put the interest of their clients above their own when making decisions about retirement account choices. (See BusinessInsider) The financial markets could recent repeat the past, particularly, great recession (2008). Nothing will prevent banks from speculating with your money and from bundling your mortgage and selling them. No downside to banks in this environment: profits they pocket but losses you keep. And if the market collapses, Uncle Sam will bail them out for being too big to fail. However, Uncle Sam will not bail you out.

During the Obama administration, Congress put infrastructure on pause. In 2011, the president wanted Congress to add $50 billion to his American Jobs Act to rebuild the U.S. infrastructure and put Americans to work. Congress blocked his plan. It was a good time to forge ahead with this plan because of prevailing low interest rates. As a result, the U.S. infrastructure continues to degrade. (See Politico.) Everyone on either side of the political divide can agree infrastructure investment is a good thing. Maybe President Trump will have better luck.

- Advertisement -

There is ambivalence around tax cuts and economic performance. In a recession, tax cuts can stimulate consumer spending by increasing their disposable income. The repeal of the ACA is a vehicle for tax cuts for the rich. For instance, repeal would eliminate the 3.8 percent surcharge on the wealthy on certain types of investments and the 0.9 percent tax on income above $200,000, used to subsidize insurance for low and middle-income households.

 

- Advertisement -

Well Said 1   Supported 1   Interesting 1  
View Ratings | Rate It

opednews.com

Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)
 

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon Share Author on Social Media   Go To Commenting

The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The Burden of Education on Students Grows but It Shouldn't

Fiscal-Policy Obstruction to Economic Recovery

Is Growing Ethnic Diversity a bad thing?

Minimum Wage, Unemployment Benefits, and Income Inequality Connection

Startups and small business create most new jobs

On Income Inequality and Economic Growth