The Trump Economy: Three Years of Volatile Continuity: Entering 2020, the country was badly prepared for a major economic shock.

• Author: Lemieux, Pierre
• Position: THE ECONOMY

Life changed drastically in early 2020. In the United States, that would have happened regardless of who was president; the White House can't order viruses around, after all. And if someone other than Donald Trump had been president, the country likely still would have experienced government failures in testing for COVID-19, containing the epidemic, and maintaining free markets. Such failures are common in political and bureaucratic systems.

What Trump definitely can be evaluated on is whether he contributed to America being better prepared for a shock and how the country was faring in the years before 2020. This article looks at the administration's economic performance from this perspective. The more solid the economy, the better prepared individuals are to face a public health and economic shock.

During the first three years of Trump's presidency, the economy expanded, unemployment and poverty fell, wages increased, taxes were cut, the stock market moved upward, and some reforms of federal regulation were introduced. So far so good.

Yet we need to be careful before offering kudos to the president. His is a powerful office, but his control over the economy is limited. His administration is constrained by the Constitution and the other branches of government. The policies of previous presidents and Congresses helped establish economic trends. The Federal Reserve System has the power to create money, but this does not give it unlimited power over the economy. Finally, the U.S. economy is only 15% of the world economy and the remaining 85%--which the president cannot easily order around--exerts, through trade, a major influence on domestic prosperity.

The "Trump economy" is thus a misnomer. Like any other president, Donald Trump is only partly responsible for what has gone well and gone wrong during his years in office and in the years to come. A president can do more damage to an economy than help it. And three years is a short time to evaluate the consequences of complex policy packages. All these caveats must be kept in mind.

Moreover, judging how an economy is performing--leaving alone the question of who is responsible for that performance--is more difficult than it might seem. The ultimate criterion should be the welfare of all individuals. But welfare is subjective and impossible to measure directly, let alone comparing it between individuals, so real income (measured by gross domestic product) usually is the substitute criterion. In economic punditry and even academia, other metrics are also used, such as employment, investment, and wages.

It is helpful to compare Trump's first three years to the performance of his immediate predecessor, Barack Obama. The two have much in common: both turned out to be interventionists and many classical liberal or libertarian economists would argue they both did more economic harm than good. Comparing them helps to provide economic and historical context.

EMPLOYMENT

Employment and unemployment measures are indicators, but only indicators, of economic flexibility and prosperity. Employment is not the goal of life; we work to consume, not the other way around. For a given level of income, people would generally prefer to work less. Over time and except in periods of macroeconomic shocks such as recessions, the level of employment closely follows the level of working-age population. Labor may be more or less productive, of course, which implies that jobs will pay more or less, but unless public policies cause recessions, incentivize people not to work, or stifle development, their effect on unemployment is limited.

With these qualifications in mind, let's see what happened to the unemployment rate over the Obama and Trump presidencies. Figure 1 shows that it reached 10% in October 2009, four months after the end of the Great Recession. Obviously, that recession was not Obama's fault, although he arguably could have accelerated the recovery by being less interventionist. Still, unemployment decreased steadily during his presidency, reaching 4.7% in December 2016. Under Trump it fell to 3.5% three years later, the lowest since 1969. (Of course, things have changed dramatically since then.) Though unemployment reached its lowest level under Trump, it fell faster and further under Obama. But not much can be made of that; the decline likely slowed under Trump because there wasn't much further unemployment could go.

Trump's first three years can be credited with improvement in the labor force participation rate (the proportion of prime-working-age individuals who are either employed or looking for a job), which increased from a low of 62.4% in 2015 to 63.2% in December 2019. That may seem small, but it indicates an active labor market where discouraged individuals who previously were not looking for work reentered the workforce. By itself, the increase in the labor force (the denominator of the unemployment rate) exerted downward pressure on the unemployment rate, which, one might think, should have gone down faster. However, a slowing in the decrease of the unemployment rate is to be expected as the economy draws closer and closer to full employment.

The Trump administration likes to stress that African Americans and Hispanics have especially benefited from the decline in unemployment. That is true, but they similarly benefited during Obama's second term.

The poverty rate decreased under the Trump administration, but at a slower rate than in the last two years of the Obama administration. (The last year for which data are available is 2018, so we only have two years of data for the Trump administration.)

Overall, the poverty and unemployment picture improved slowly from 2009 to 2019, with no radical break when the occupant of the White House changed. The Obama economy and the Trump economy seem to be the same economy. This observation applies to many other measures of American prosperity.

ECONOMIC GROWTH

Along with employment, the Trump administration likes to trumpet its record on economic growth. Here too, Trump's record is not much different than Obama's.

Figure 2 shows the annual growth of real GDP per capita. Obama inherited the Great Recession, which had started nearly a year before his election and had its worst quarter in late 2008. Obama could not avoid the recession any more than Trump could avoid the pandemic.

The recession ended two quarters into Obama's presidency. The chart suggests that the annual growth of real GDP per capita has been better under Trump, even if we ignore the 2009 negative growth. Under Obama, the average annual growth starting in 2010 was 1.4%. Under Trump, it averaged 2.0%, though the upward trend slowed in 2019, falling to 1.8%, which is roughly the same level as 2017. These data are consistent with the continuation of a slow recovery from the Great Recession.

Compare economic growth during the Trump years with what his Council of Economic Advisers (CEA) forecasted in...