Recently, a student came to me in a state of perplexity. His liberal friends were insisting that President Obama deserves much credit for today’s favorable economic news of higher GDP growth and lower unemployment, while his conservative friends give President Trump the credit. Welcome to the wonderful world of partisan politics, young man. The game is simple: Spin-meisters on both sides lay claim to every favorable economic development while blaming the other side for everything wrong with the economy.
So, which president deserves credit for the uptick in the American economy? Unemployment has been falling and wages rising since 2011. Because those favorable trends persisted through the last six years of the Obama presidency, Obama deserves credit, doesn’t he? No, he doesn’t.
Historical context is crucial. The natural tendency is for unemployment to fall after a recession. Resourceful entrepreneurs always find ways to reignite economic growth after recessions, unless foolish government policies undermine recovery as Presidents Hoover and Roosevelt tragically did in the 1930s Great Depression.
As I have written previously, the so-called “Obama recovery” was historically weak. The average GDP growth rate was between 1.5 and 2.1 percent, depending on the source—the weakest recovery under any post-WWII president.
The reason for this is straightforward: Obama’s anti-business, anti-free market bias gave rise to policies that generated strong economic headwinds. Obama believed that “only government can” get an economy running properly. In 2012, he publicly disrespected private entrepreneurs by declaring that they hadn’t built their businesses. He pursued a blatantly anti-business economic agenda. Private enterprises were constantly being hampered by an aggressive whac-a-mole regulatory agenda. Fortunately for America’s businesses and workers, beginning in 2011 a Republican House of Representatives, while unable to blunt the regulatory zeal of the executive branch of government, fended off Obama’s anti-business legislative ambitions and enabled economic growth to proceed, albeit tepidly. In short, the sluggish economic growth of Obama’s last six years happened in spite of him, not because of him.
Since Donald Trump became president, there has been a noticeable uptick in economic growth. GDP has grown between 2.9 and 3.1 percent. The New York Times reported that unemployment has continued to fall (reaching the lowest level in more than half a century) and wage increases have nudged upward. Trump’s policy changes in two areas deserve the credit for these economic improvements. First, he reduced burdensome regulations. The Federal Register shrank from 97,110 pages of regulations during Obama’s last year to 61,949 in Trump’s first year. Second, he cut taxes, leaving more money in the private sector where the wealth of the country is created most efficiently.
While Trump’s economic record is clearly superior to his predecessor’s, the gains under Trump remain subdued compared to earlier recoveries. Trump himself offset some of the gains from his income tax cuts by raising other taxes – specifically, tariffs. However, the major impediments to more vigorous economic growth are factors beyond any president’s control – Federal Reserve policy, economic sluggishness abroad, and (most ominously of all) Americans’ ever-increasing debt burden.
Does President Obama or President Trump deserve more credit for today’s economic growth? There is no need to overthink this question. Obama was anti-business and Trump is pro-business, and the results reflect the difference. Ideology matters. Those hopping aboard the democratic socialism bandwagon should realize that a president with an ideological antipathy for society’s wealth creators is far more likely to cripple wealth creation and job formation than a president who understands and appreciates private businesses’ essential role.
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- What’s Wrong with a Tax on Billionaires? - December 20, 2019