I’ve been criticizing Mr. Trump for trade for some time now, and unfortunately I don’t think that’s going to let up anytime soon. However, I want to continue to give him credit in this limited sense: Presidents (and politicians generally) don’t make the economy grow faster, but what they can do is take away the government-imposed barriers that keep the market from working as well as it could. And that is exactly what Mr. Trump has done. Progressives almost always decry supply side economics, even though the basic tenet is apodictically* certain–that people respond to incentives. And while politicians almost always focus on tax cuts as supply side policy, anything that changes the incentives to work, save and invest are supply side stimulants. Mr. Trump is succeeding in spite of himself because from day one, he made freeing up the economy from unnecessary government interference a prime goal. Deregulation, and its accompanying corollary, improved business confidence, have led to yesterday’s GDP announcement of 4.1% growth. While I continue to believe that Mr. Trump’s trade foolishness both lowered that number (by dampening business certainty about the future business environment) and threatens to curtail it more going forward, yet we must highlight the importance of it. This is the first time in a decade where we’re now getting close to 3% growth for an entire year (2.8% yoy, compared with 2.2% under the Obama expansion). Under Mr. Obama, we had a better quarter than this, but not sustained–he was the first president ever not to have even one year of >3% economic growth. The progressives even began talking about this as the “new normal;” we can’t grow faster than 2%. To which Mr. Trump said, correctly, baloney! As the WSJ this morning relates:
The lesson is that policies matter and so does the tone set by political leaders. For eight years Barack Obama told Americans that inequality was a bigger problem than slow economic growth, that stagnant wages were the fault of the rich, and that government through regulation and politically directed credit could create prosperity. The result was slow growth, and secular stagnation was the intellectual attempt to explain that policy failure.
Under the Obama administration, there were concerns that we couldn’t get enough skilled labor; under the Trump administration, there are concerns that we can’t get enough labor at all! So I’m back in Ohio today from a short excursion to Montgomery Alabama and visiting Maxwell AFB, where I was blessed with 99 deg temperatures. (today’s wx forecast in Dayton OH is sunny and 78 deg!). Every gas station and dining establishment we stopped at on the road had help wanted signs. What I’ve been seeing here in Ohio is certainly happening elsewhere. At the hotel where I was staying, I met a couple of good ‘ol boys from NE Arkansas, as I was noticing the nice welding rig and massive Wilton vise on the back of his Dodge one ton pickup. Since I am both from Arkansas and have an interest in welding, we struck up a conversation. They are there for a month, on a job for some oil company, burning stick welds in 42″ pipe all day long. We talked politics, economics, and about the hard life on the road for welders chasing jobs. These two have been together for years, and one is simply a helper for the welder. They related the hard work of welding; not only out in nearly 100 degrees, but suited up with protection its just a tough job. But they made good money, and they liked it. And they can’t find anyone willing to work with them in the hot sun. “If we can get them to last a week, they’ll likely make it.” But the young men they try to hire (and these guys were both 37) would usually last a day and head home. They would work often seven 10 hr days per week, but they would pay someone $1800 per week when per diem and overtime were added. For unskilled entry labor, they can’t find someone that wants $7200/month! They related that one guy they tried to hire wanted $10/hr, and they had to pay $15/hr, and he wouldn’t take it. Why? They said that he told them if he got paid that much, he’d have to give up his government provided health care. I wasn’t probing them too much about why–“why not just pay him the $10”, but perhaps the rules from the oil company contract required it. Whatever the story, it rings true with my own experience in Southern Arkansas (and I don’t think this is just representative of Arkansas), its very difficult to get people to do honest hard work at good pay. Here in Ohio, I’ve talked with landscapers (and this is during the Obama administration with less opportunity elsewhere); young men would last about a half a day in the heat and decided they had enough–walking away from >$10/hr work.
I still believe that America is the Land of Opportunity, especially in a Trump Administration. But you have to be willing to work hard if you expect that opportunity.
* I love this term; Ludwid Von Mises used it often; means unquestionably true.