We now know why President Obama had to struggle so hard to spur the economy and allow it to grow more than 2 percent a year. And that was the high-water mark. In the last quarter of his presidency, growth had slipped to 1.5 percent. Today it’s obvious what Obama’s problem was. He had the wrong policies‚ lots of them.
How do we know this? Obama’s successor, Donald Trump, and the Republican Congress reversed Obama’s policies. The result, from the day Trump was elected, has been a more robust economy. Nearly 4 million jobs have been added, and unemployment has dipped to the lowest point in nearly a half-century. Let’s compare what Obama did with what Trump is doing.
Obama raised taxes. Trump cut them. Obama was a regulatory zealot. Trump is passionate about deregulation. Obama’s Clean Power Plan killed the coal industry. Trump is reviving it. Obama downgraded the role of entrepreneurs and free markets in boosting the economy and lauded the wonderful things government does.
Obama’s biggest breakthrough was the Affordable Care Act, a big step toward a single-payer, government-run health care system. Trump got rid of the individual mandate that forced everyone to buy expensive insurance or be fined—a big step toward a return to free markets in health care.
The entire Obama economic agenda was “systematically reversed,” says economics writer Stephen Moore, a Trump adviser in the 2016 campaign. He and Arthur Laffer are authors of the new book Trumponomics: Inside the America First Plan to Revive Our Economy.
Presidents love to tout their achievements. In Trump’s case, a White House report issued last week said his administration had produced 289 accomplishments in 20 months. We all know Trump exaggerates and brags. But many of the economic gains were impressive, especially the fact that job openings outnumber job seekers for the first time on record.
Being a liberal himself, Obama relied on liberal economists. They led him astray, as they did President Kennedy in the 1960s. They favored higher taxes and increased spending, policies that caused an economic downturn.
Kennedy was smarter than Obama. He finally turned to his Republican Treasury secretary C. Douglas Dillon, who recommended tax cuts. JFK grabbed onto them and the result was an economic boom, the Roaring ’60s.
President Reagan’s advisers persuaded him that tax cuts—championed by Jack Kemp—would do far more for the economy than spending cuts. They even used JFK’s as an example. The sweeping tax cuts of 1981 brought about years of strong growth known as the Reagan Revolution.
Trump didn’t need to be convinced. He and Republicans on Capitol Hill, led by Paul Ryan, believed it was time for deep cuts in the corporate tax rate. Trump initially proposed a 15 percent rate before settling for 21 percent.
The Obama school of economists and commentators, embarrassed by anemic results, argued that economic growth was stuck, perhaps permanently, at 2 percent annually. That meant Obama was doing the best any president could do. Certainly far better than Trump, about whom they issued dire predictions:
- We are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.” Paul Krugman, Nobel winner and New York Times columnist.
- “Under Trump, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States.” Larry Summers, former Harvard president and Treasury secretary.
- “President Trump could destroy the world economy.” Washington Post editorial.
- “Trump’s budget assumes 3% annual growth. . . . That’s extremely unlikely.” Jason Furman, chairman of Obama’s Council of Economic Advisers.
- “If Trump thinks he can get more than 3% growth, he’s dreaming.” Michael Hiltzik, Pulitzer-winning economics writer for the Los Angeles Times.
Wrong, wrong, and wrong. Trump’s economy is expected to grow by more than 3 percent this year.
Barack Obama is a proud man and it was somewhat endearing when he stooped to claim he had created the ground on which Trump’s economy was growing. The media sided with Obama, no surprise.
Trump counterpunched—no surprise there either. “If the Democrats had won the election of 2016, GDP, which was about 1% and going down, would have been minus 4% instead of up 4.2%,” Trump tweeted. The 4.2 percent he referred to was the growth rate for the second quarter of 2018.
“I opened up our beautiful economic engine with Regulation and Tax Cuts,” Trump wrote. “Our system was choking and would have been made worse. Still plenty to do!”
Trump is correct about the condition of the economy in late 2016. It was weakening. The shift in economic policy to the right changed the direction of growth from down to up, just as it had with JFK and with Reagan. That’s what tax cuts deliver and tax hikes don’t.