The February employment report indicated that the U.S. economy added a whopping 273,000 new jobs. In addition, 85,000 more jobs were added to the previous months’ tally. The unemployment rate fell to 3.5%.
Since November the number of new jobs the economy is generating monthly points to stronger economic growth. In spite of the potential negative effects of the Coronavirus, it appears that President Trump’s reversal of the Obama Administration’s economic policies, has provided true economic prosperity.
And make no mistake: it is Trump’s reversal of Obama’s growth stifling economic policies that have brought today’s prosperity. The good times are not a continuation of Obama’s policies, but rather a complete reversal. Obama’s polices resulted in a decade of economic stagnation, from 2007 to 2016.
There were three major Obama policy actions that concentrated on curing perceived social injustices rather than increasing economic growth. Each policy tended to slow economic growth. The Affordable Care Act (ACA) provided health insurance for 20 million uninsured Americans. But the ACA had 21 new or increased taxes. Higher tax rates tend to slow economic growth.
A portion of the 20 million previously uninsured Americans got health insurance from their employers who were forced to provide health insurance to all full-time employees or pay a $3,000 fine. This added to the cost of labor and tended to slow economic growth.
To prevent banks from taking advantage of consumers, Obama passed the Dodd/Frank bill which eliminated predatory lending. The problem was it made all lending very difficult for banks. This minimized the multiplying effect of the Fed’s quantitative easing, which slowed economic growth.
Obama imposed thousands of new regulations on business to “protect” consumers. These regulations added to the cost of business and tended to slow economic growth.
In addition to those three policy actions, Obama also created a huge annual budget deficit problem. In 2008, just prior to Obama entering office the annual deficit was $455 billion. In 2009, Obama’s massive stimulus package which failed to stimulate the economy, more than tripled the annual deficit to $1.4 trillion.
The deficit stayed above $1 trillion until 2013. The current administration is still struggling to control it.
Beginning in 2017, Trump immediately eliminated thousands of Obama’s counter-productive regulations. Economic growth began to increase. In 2018, President Trump reversed Obama’s tax increases as he cut taxes for all Americans. Economic growth neared 3%, a number not seen since 2005.
Also in 2018, Trump had Congress repeal parts of the Dodd/Frank bill, which made it easier for banks to lend, making Monetary Policy more effective. Trump also changed the ACA by eliminating the individual mandate. He fell just one vote short in the Senate on a completely new health care bill.
Trump’s actions have reversed the growth stifling Obama policies and created the economic prosperity will see today. Had the Fed not raised interest rates eight times from the end of 2016 to the end of 2018, growth today could be as high as 4%. Fortunately, they reduced interests in 2019 and again this year.
Normally the Fed’s actions would lead to increased economic growth, but we now have the uncertainty of the Coronavirus. So far the impact of the virus on the U.S. economy seems to be low, although some industries have been hit hard.
February’s robust jobs report indicates that companies, in general, were not that concerned about coronavirus. As the number of cases increase, though, there is uncertainty about the final future effects. Trump says the final impact may actually be positive.
Trump’s logic is that the economic impact of previous viruses like the swine flu in 2009, was not great. In the meantime, the fear of the virus has resulted in the Fed dropping interest rates by half of a percent. And the Fed injected more liquidity into the banking system. They did this to try to stimulate economic growth.
The Fed’s action will do just that. Mortgage rates will fail to historic lows which should mean a strong housing market this year. In addition, Congress just authorized an additional $8.5 billion to be spent to combat this virus. Although this is a relatively small amount, that spending will tend to add to economic growth.
It is true that consumer spending could fall as a result of consumers becoming cautious and reducing spending, especially for travel and leisure. But if the warm weather reduces the number of new cases and if consumers become confident that they can take measures to control the spread of the disease, consumer spending may not suffer.
In the end there may be minimal effects on overall economic activity in the U.S. from the virus. There will be positive effects of the economy from the Fed’s policies. In addition, once the panic from the virus subsides, investors will see the bargain prices for most stocks. This will cause the stock market to rise and again instill confidence in consumers.
So far, economic conditions don’t look nearly as bad as the pundits would have us believe. And thanks to Trump’s reversal of the Obama administration’s growth stifling policies, the long term economic picture looks very bright.
Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.
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