The Truth About the Obama/Trump Economy

A PRIMER FOR COUNTERING TRUMPISTA CHEST THUMPING

A great deal of attention has been paid to the fact that the economy under The Orange Don is doing quite well. Despite all of the other nonsense, the Tweets, the White House turnover rate, the scandals, Trump seems to know what he’s doing on the economy.¹

This is, of course, disconcerting to those of us who vomit at the thought of a second term for this walking satire and scam artist. The bottom line is, however, that a strong economy is of significant advantage to the incumbent president, even an incumbent president who has done absolutely nothing to deserve credit. So I’ve decided to dedicate this post to summarizing and highlighting some cold, hard truths on what I’m calling the Obama/Trump economy.

Hopefully, this post can be used as a primer to counter the right-wing blather from your FoxNoise adhering family and provide some much-needed context to those who do not have a firm grasp of economics (which turns out to be just about everyone on both sides of the aisle). It should also serve as a check against self-congratulatory Democrats who try to claim credit for the economy and place it at the feet of Obama.

The first thing that must be explained is the difference between fiscal policy and monetary policy. Fiscal policy is the economic decisions made by governments, such as on taxes and spending. Monetary policy involves the decisions of central banks, namely the Federal Reserve in the United States.

Now here’s the dirty little secret that politicians and their fawning pundits never explain when making campaign promises or when attacking their opponents for ruining the economy. Under most circumstances, fiscal policy has very little influence over the economy. In normal times, the economy responds to monetary decisions with regard to Fed Interest rates and reserve requirements. As you were told in the high school economics class that you didn’t pay attention in (full disclosure, I teach high school economics, so you can’t fool me!) during times of economic recession the fed lowers interest rates to encourage borrowing and get money into the market; during times of inflation, the Fed raises rates to discourage borrowing and peel money from the market. Normally, this system works pretty well when using standard, capitalistic criteria.

That is, of course, during normal economic times. Sometimes, things go awry with the economy and the only mechanisms available are fiscal in nature. The last time fiscal policy dramatically influenced the economy was in 2009. At the height of The Great

Recession, monetary policy was hobbled by what economists refer to as a “Liquidity Trap.” In other words, the economy was crashing, but Fed Rates were already as low as they could be (banks will not lend at 0% interest). The only solution was good, ol’ fashioned, Keynesian stimulus. In 2009, that’s what the Democrats under President Obama’s leadership did. Now we can argue the particulars of the stimulus, but what is not up for debate is that this fiscal policy was largely responsible for ending the recession.

What it did not do, however, was end the recession quickly. The fiscal stimulus, TARP, and monetary Quantitative Easing put the brake on the economic freefall leading to painfully slow, but consistent and it turns out persistent, growth. Growth that the Orange Don has not yet managed to screw up as of this writing.

Since the stimulus, the recovery has been perpetuated by monetary Quantitative Easing and the willingness of the Federal Reserve to keep rates low. The only real influence the president has played in this process is in the selection of Federal Reserve Governors and the Chairperson, namely Janet Yellen. Otherwise, President Obama’s fiscal policies, as constrained as they were by relentless Republican obstructionism, has had little effect on growth, good or bad.

Furthermore, the Obama Administration, despite being criticised as “socialist” by the frothing right, did little to reform the economy in any meaningful way. Obama economic reforms were limited the Dodd-Frank Act and the Consumer Financial Protection Bureau. These were not insignificant, but they were anodyne policy when what the economy needed was a reboot. Obama and the Democrats had a filibuster-proof majority in Congress, albeit briefly, and the government could borrow at almost zero interest (less than zero when real dollar values were factored in). More could have been done for working people if only average Americans inspired the same passion and dedication from our so-called representatives as did the big banks.

The government spared no expense stumbling all over itself to bail out big banks and financial institutions. Their zeal for protecting working Americans was less than inspiring. Furthermore, there was no good reason for this except to shore up the ramparts of corporate capitalism in the face of calamity. Economically speaking, it would have made little difference if hundreds of billions of dollars were spent on mortgage payers rather than mortgage holders. The money spends the same within the market. The people trusted the Democrats to stand up for them. When the Democrats turned out to be just another corporate shill, the Dems lost their numbers and their opportunity to make a real difference.

Credit must be given where it is due, however. Obama and the Democrats’ early fiscal policies did end the recession and kickstarted economic growth. This is the economy that Trump has inherited, and it simply hasn’t changed much regardless of right-wing propaganda. At the very best, it can be said that Trump has not extended his pattern of business failure to the U.S. economy–yet. His penchant for corruption may be another story entirely. Trump’s fiscal policy in his first year is limited to some deregulatory Executive Orders and a recently passed tax deform reform that will require about $1.5 trillion in debt if current growth is to be sustained, which seems to be exactly what the proposed budget does.

Indeed, by Trump’s very own criteria, his first year in office has been a failure. In 2016, candidate Trump, campaigning in the face of economic growth and a falling unemployment rate, based his critique of the Obama economy on the declining Civilian Participation Rate, food stamps and the trade deficit.

The Civilian Participation Rate, the percentage of the population that is working in the civilian economy, is the favorite whipping boy for the right wing…when a Democrat is in office. Now, this is largely a meaningless measure as an indicator of how well the economy is doing, as most of the variance is due to demographic factors such as Baby Boomers entering retirement. However,

it was the indicator that Trump chose, and by this indicator, his numbers are not an improvement over Obama’s. The best that can be said is that it appears to have leveled off.

 

Of course, conservatives never get enough of lashing Democrats for the number of people on food stamps (SNAP), as if helping people eat is a bad thing. Trump was no exception to this rule. He pointed out during the campaign that there were about 43 million Americans on food stamps. True enough. How many people were on food stamps as of Fiscal Year 2018? Almost 43.7 million. Well…um…

Surely, with all of his protectionist rhetoric and MAGA hats, The Orange Don is finally getting our trade deficit under control. After all, he hammered Hillary Clinton and President Obama for an $800 billion trade deficit. This was largely attributed to their weakness as negotiators. How has the United States done now that we are wielding the “Art of the Deal?” Well, the trade deficit is worse.

I know. Awkward, right?

Look, none of this should come as a surprise. It’s not my contention that President Trump is at fault for the shortcomings above. He’s not. But neither was Obama. Nor can it be said that Trump deserves credit for the low unemployment rate, but, sorry Democrats, neither can Obama. The bottom line is that, as it stands, since 2010, fiscal policy has played little role in the economy, regardless of the party shaping the policy. Since 2014, when the Fed ended its Quantitative Easing program, the economy has been largely self-propelling. Trump is, thus far, the benefactor of this. He happens to be the guy in the office when this slow growth is finally starting to make a noticeable difference for Americans. The light is finally visible. Good for him.

This is an irony. There isn’t a single, current economic trend that we can look at that didn’t begin during the conservative “bad ol’ days” of the Obama Administration. Even the record low unemployment rate among African Americans that the Trump Junta likes to roll out every time they get a chance is not a departure from the falling rate under Obama.

On the other hand, areas of common Democratic criticism, like picayune claims that employment has slowed under Trump also have little to do with The Donald. As the nation approaches full employment, changes in employment will slow and wages should increase. Truth be told, once wages start increasing, the Fed will raise rates and investors will cool their engines. There’s nothing the investor class fears more than working people getting a bigger piece of the pie. There goes the Trump Stock Market miracle.

At this point in our economy, neither Trump nor Obama deserves credit or blame for the trends observed above. We can credit Obama and the Democrats for the fiscal stimulus in 2009, as inadequate as it was. The signature Dodd-Frank Act and Consumer Financial Protection Bureau may have proven more beneficial than those of us on the left were willing to give it credit for, but that hardly matters any more.  Dodd-Frank and the CFPB, embattled since the beginning, is now left to jackyls and will most likely be nothing more than picked clean corps before The Orange Don leaves office.

But here’s what ties the Obama and Trump economies together, an analysis of which we are not going to see played out in the mainstream media. The United States continues to be an unsustainably unequal society. That did not change in the Obama years as is clear from the chart at left. If nothing else, the Great Recession was an opportunity to take a critical look at American finance and multi-national driven capitalism and, at the very least, resurrect the spirit of the New Deal to help redistribute the wealth toward working people rather than the top one percent (1/10th of 1%). That didn’t happen. The frustration from this lopsided recovery may have even contributed to the election of a mindless publicity succubus to the highest office of the land.

There’s the irony. Because Obama and the Democrats did not take their historic opportunity to propose innovative, progressive, redistributive policies, we are now in a position in which we can expect fiscal policy to be driven by regressive redistribution. The Tax Cuts and Jobs Act is only part one of what will likely be an acceleration of upward redistribution of wealth to the top fractions of the one percent. Fiscal policy does not have much impact on the economy overall, but it does have an impact on people’s lives. It’s through fiscal policy that fruits of a growing economy can be more fairly distributed to benefit everyone, not just the top tier. Fiscal policy can also help cushion the blow of economic hardship for all, not just provide golden parachutes for the rich.

Instead of a progressive, just economy, the Obama Administration struggled to maintain the status quo at a time when the neo-liberal experiment was thoroughly discredited. He accomplished exactly that, bolstering the economic status quo, at the expense of working people all over the country who were hoping that maybe, just maybe, after eight years, just a few of the benefits that showered down on the corporate elite after the recession would trickle down on them. It didn’t happen.

Now Trump is driving fiscal policy. What do you suppose his priorities are going to be?

If Democrats do not take this opportunity to jump on the platform for fiscal proposals that will help working people, namely a living wage, Medicare for all, publicly funded tertiary education, investments in infrastructure including a Green New Deal, then they will continue to lose. Furthermore, they will deserve to lose.

It’s not enough to be “AntiTrump” or “AntiRepublican.” Democrats must demonstrate that they are AntiNeoliberal and thus, for the people.

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1. I started writing this before the Stock Market started to go crazy.