Amidst the hurly-burly of impeachment, America’s economic policy seems almost a diversion. A recent assessment by Canadian economist David Henderson provides a pithy summary of Trump’s successes and failures, and in the process raises some interesting questions on how right-of-centre political parties might need to adapt their policies.
Henderson bases his judgments on two criteria: (1) as a believer in economic freedom and (2) as an economist who cares about people’s economic wellbeing.
And on these parameters, he finds Trump’s performance – you’ll be shocked to discover – somewhat inconsistent:
“… some of Trump’s policies have been very good indeed and some have been horrid. Specifically, the former have been the 2017 tax cut and his substantial deregulation and holding off on new regulations. The horrid policies have been those on trade, immigration, and federal government spending.”
On the good stuff, Henderson says the tax changes increased both freedom and improved economic incentives. He argues that the corporate tax cut will increase the capital stock, making workers more productive and increasing real wages, citing a study that suggests dynamic revenue gains will make up the static revenue loss.
The deregulatory wins are also not trivial. Estimates (by Trump’s Council of Economic Advisers) suggest that “after 5 to 10 years, this … will have raised real incomes by $3,100 per household per year.”
Governments of both left and right have talked a good game on deregulation for many years. What stands out is that Trump seems to be delivering.
Now the bad stuff.
Looking at the trade record, Henderson accepts, with some reluctance, that what Trump has actually done so far is not that different from what most presidents do, including ‘free traders’ like Ronald Reagan. His criticism is that Trump really seems to believe the delusion that trade barriers make people richer, and is an active initiator of protection.
No argument here on the economic infelicity of Trump’s trade rhetoric but ultimately actions speak louder than words. And the actions and the words differ. As Ramesh Ponnuru of the National Review observes with only a touch of irony:
“President Trump could be on the verge of his biggest bipartisan accomplishment … the passage of a slightly modified version of what he has called “perhaps the worst trade deal ever made.””
Yes – Trump is promoting a revision of the North American Free Trade Agreement (NAFTA) that most experts seem to think changes remarkably little. The proposals even include new digital trade rules, lifted from the Obama-era Trans-Pacific Partnership, condemned by Trump.
Immigration also seems to share the pattern of loud noise coupled with not-terribly-effective action. Trump has used executive powers to reduce the refugee intake and more vigorously enforce the laws against employment of illegal immigrants. But he has not been able to pass legislation which would halve legal immigration levels .
Increasing government spending is a bipartisan affair. But Henderson rightly points out that Trump helped Republicans in the legislature trash the Obama spending caps and supported an 8% increase in spending in the 2019 fiscal year.
How to make sense of all this? Even allowing for America’s constitutional separation of legislative and executive powers, this is not conventional left / right politics as we have known it. But assessing the outcomes by Henderson’s criteria of economic freedom and prosperity, Trump does not come out too badly.
As Henderson himself points out:
“A rough and ready way to judge the effects of Donald Trump’s economic policies … is to compare the average annual growth of GDP with that of his predecessor, Barack Obama. By that measure, which, as I noted, is biased slightly in favor of Obama, Trump is outpacing Obama by about 0.5 percentage points of growth annually. Were he to reverse his policies on trade, immigration, and government spending, he would do even better.”
You could go a little further, and note that where Trump has had discretion (eg, deregulation), he has acted. In areas where he has been forced to negotiate (eg, tax reform and NAFTA trade), the outcomes are not bad. And in the areas distinguished by scary rhetoric (eg, wider trade and skilled migrants), not much bad has happened – yet.
These are outcomes which might work quite well from a right-of-centre perspective in next year’s election (assuming no impeachment conviction). While the approach can be criticised on grounds of inconsistency, Trump’s supporters have to date been fairly relaxed on this front.
It can also be attacked, from the Henderson perspective of economic freedom and efficiency, for its insufficiency. But the Democratic presidential contenders aren’t showing much interest in tackling Trump from this angle.