The biggest myth of the Trump economy

President Trump gave a big-deal speech on the economy in New York on Nov. 12 that was as much fiction as fact.

Trump overplayed the health of the economy, said his daughter Ivanka created 14 million jobs, vastly overstated income gains on his watch and lied for at least the 100th time about China paying the tariffs he has placed on American importers. You could bleed as much ink correcting Trump’s lies as he spent on the whole speech.

But there’s one overriding falsehood that dominates Trump’s narrative on the economy: That presidential policies determine the state of the economy. This is not true under Trump and it was not true under his predecessors, either.

Trump’s riff is familiar to anybody who has heard him talk about the economy. Before he became president, all was bollox and misery. But once he ascended to the throne, workers started finding jobs, stocks started to rise and families began to feel confident. “Our middle class was being crushed,” he said in New York. “I knew if we lifted these burdens from the economy…. Economic prosperity would come thundering back at a record speed…. We have delivered on our promises…. We have ended the war on American workers and the assault on American industry.”

What has happened in reality has little to do with Trump’s policies, just as it had little to do with President Obama’s policies before him. The economy has been on a slow but remarkably steady recovery since the last recession ended in 2009. Trump takes credit for millions of new jobs and rising stocks, but the trendline has been consistent from Obama’s second term, which ended in early 2017, through Trump’s three years. A few charts show the story:

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What you see here is an economy that didn’t change much between the Trump and Obama administrations. If anything, a few important trends are weakening under Trump. Job growth has dropped from a monthly average of 216,000 during Obama’s second term to 182,000 under Trump. A key measure of manufacturing activity shows the factory economy has dipped into a recession, with the lowest pace of activity since 2009. Real GDP growth has not exceeded 3% since 2004. The Obama peak was 2.9% in 2015. The Trump peak was 2.9% in 2018.

Independent of government policy

What’s going on here is a business cycle running its own course largely independent of government policy. There are a couple of exceptions. Monetary policy under the Federal Reserve was extremely stimulative for most of Obama’s presidency. It tightened a bit under Trump, but the Fed is now easing once again. The Obama economy might have been weaker without extraordinarily low interest rates.

The Trump economy is getting a similar assist from the 2017 Republican tax cut law, which supporters said would boost growth. It hasn’t, really, and it has led to ballooning federal deficits, but without the tax cut, growth might be even weaker.

It’s telling that powerful monetary stimulus under Obama and fiscal stimulus under Trump has been unable to push growth above 3%. That’s probably because of structural problems in the economy—rising income inequality, an aging workforce, declining output from working-age men—that actually call for policy intervention. No administration is addressing those problems, though.

The irony of Trump’s economic bragging is that one Trump policy really is affecting the economy—for the worse. Trump’s trade war with China is the biggest economic worry for many CEOs, and it has coincided with the manufacturing slump and an unusual pullback in business spending. Falsehoods are so integral to Trump’s economic program, however, that he refuses to acknowledge the harm caused by the trade war, which means he may be unable to fix it. He’ll probably blame Obama, eventually.