In 2016, the economy was continuing an eight year stagnation. The 2008/2009 recession was long over, but an expansion never began as the slow recovery was still in progress.
Then Donald Trump was elected president and everything changed. Trump brought economic prosperity to America. Can Trump bring prosperity back?
Normally when the economy is in recession, as it was in 2009, the administration sets economic growth as the primary policy. Administrations would seek to use fiscal and/or monetary policy to stimulate growth. Other policies should be consistent with the goal of increasing growth to quickly end the recession, accelerate the recovery and move to expansion.
In 2009, the Obama administration attempted to use fiscal policy by passing a stimulus package which increased government spending by nearly $800 billion. That action alone should have significantly increased growth. It did not work.
The reason was simple.
About one-third of the package was for tax cuts. That action would stimulate growth, but the $288 billion was simply not enough and did little to stimulate growth.
Another $224 billion was used to extend unemployment benefits. That actually slowed economic growth because the higher and longer unemployment benefits gave unemployed workers an incentive to stay unemployed, rather than return to work.
Another $275 billion was spent on creating jobs by offering federal contracts to companies with shovel ready jobs. Later the administration admitted that the shovel ready jobs were not as “shovel ready as we expected.”
The other problem was that Congress spread the spending over a three year period, which meant there was never enough spending in any one year to move the economy past recovery and into expansion. Spending the money in a single year would have been better.
The dismal stimulus package failed to stimulate the economy. Monetary policy wasn’t effective either, although the Federal Reserve vastly increased the money supply through quantitative easing.
Normally that alone would lead to an expanding economy. An expansive monetary policy works to stimulate the economy as long as the initial increase in the money supply has a multiplying effect. The multiplying effect comes from the banks making loans so that more money is circulating in the economy.
However in 2010, the Dodd/Frank bill was passed to eliminate what was referred to as, predatory lending. The problem was that the bill reduced all lending. That eliminated any multiplying effect and negated the expansionary effects of Monetary Policy.
In 2010, the Affordable Care Act (ACA) was passed. That act provided healthcare for an additional 20 million Americans. In addition, it forced companies to pay for health insurance for all employees who worked more than 30 hours per week, or pay a $3,000 annual fine. That added to the cost of business and reduced economic growth.
In 2011, the Bush tax cuts passed in 2001 expired. Obama made them permanent for all taxpayers except the highest income earners. For those Americans, taxes were increased by 10%. Raising taxes on the highest income earners reduces capital formation and tends to slow economic growth.
The Obama administration also imposed thousands of new regulations designed to protect consumers. But the regulations added to the cost of business and slowed economic growth.
Trump entered office in January 2017. He immediately eliminated hundreds of growth-stifling regulations. Economic growth increased. Unemployment fell. The new jobs that were created were good, higher paying jobs. The Obama jobs were mostly part-time, low-paying jobs with people working less than 30 hours per week, as companies sought to avoid the ACA $3,000 penalty.
Trump eliminated that provision of the ACA.
Trump also cut taxes for all Americans and corporations which stimulated demand from the middle class and created new capital from corporations and the upper class. That tended to stimulate growth.
Trump also renegotiated the lopsided trade deals. New trade deals were signed with Mexico, Canada, Japan, South Korea and China. Negotiations are ongoing with the European Union, India and England. These new deals stimulate economic growth.
By 2020 the economy was set for high growth, likely seeing the best growth rate in two decades. All Americans, who had any skills, began to see new opportunities at higher wages. Since inflation was low, there was a real increase in purchasing power. Consumer confidence hit record highs. Economic prosperity had returned to the U.S.
Then the coronavirus struck and the U.S. economy grinded to a halt. A deep recession followed. Now Americans yearn for a return to the Trump prosperity. Fortunately, we are about to return. Assuming the coronavirus can be controlled later this year and a vaccine is developed by early next year, Trump has again set the stage for prosperity.
Tax rates are low. Growth stifling regulations have been eliminated. Foreign trade is coming into balance. The Federal Reserve has vastly increased the money supply and with the crippling parts of Dodd/Frank having been repealed there will be a multiplying effect.
Once the economy fully reopens, consumers will have money to spend since nearly every taxpayer got a $1,200 check from the government. A family of four received $3,400. For those unemployed, an extra $600 was added to their weekly check.
Small business was given loans to pay the wages of their employees. As long as no employee is laid off, the loan turns into a grant.
The stage is set for a return to prosperity.
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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