It is election season, so we face several more months of claims about the U.S. economy. Predictably, the economy is neither as good as the incumbents profess it to be, nor bad as those running to unseat them assert.
The real truth is somewhere in between.
Of course, each side will be armed with data, but politicians selectively forget to adjust for inflation or ignore seasonal adjustments that correct distortions in monthly or quarterly data. The economy is a complex affair, and each of us view it through our own lens. This is my assessment as a professional economist who wants better policies from both parties.
We are in the longest expansion in U.S. history, and employment growth continues to do surprisingly well. Every healthy adult who wishes for a job can find one. While wage gains have been modest, over the past year we have seen stronger growth, particularly among the lowest-paid workers. Nationally, the composition of job growth has been good. Only 2.5% of workers are involuntarily working part time. Job growth has been in traditional full-time employment. Even with recent softening of labor markets, particularly in manufacturing, we live in an enviable time to be a worker.
There are many other good aspects to our current economy. Much of what we don’t measure well in our economy seems to be booming. Leisure is surely far less costly than in the past, and seemingly more productive. For most demographic groups, lifestyles are healthier and lifespans longer than even a decade ago. There is significant opportunity for human flourishing in what is unambiguously the wealthiest economy in history.
Household wealth is rising for families who’ve invested in homes, or saved, and thus invested money in an expanding economy. In this way, wealth is churned from Wall Street back to Main Street in a regular pattern. The ubiquity of retirement accounts and stock back pensions means that we are all capitalists now.
This good news does not mean the incumbent talking points are right, for two very important reasons. The first is that the Trump economy is no better than the Obama economy, and in the most meaningful ways modestly worse. The second is that the good economic news is not equally distributed across our republic.
Comparing the last three years of the Obama administration with the first three of the Trump administration offers a good comparison. Annual GDP growth in the Trump years is at 2.52%, while it was 2.25% average for Mr. Obama. But, in terms of job growth, Mr. Obama’s last three years saw a full 1.5 million extra jobs created — a roughly 20% better performance. While job growth was solid in both administrations, overall economic growth has been unusually tepid. What makes our current affairs worse than the 2014-2016 period is that the U.S. is now engaged in unprecedented fiscal stimulus, through budget deficits, monetary policy, and farm bailouts.
Mr. Trump’s presidency has seen the deficit grow by $2,575,949,000,000 over three years — a full trillion dollars more than the last three years of Mr. Obama’s presidency. Both the bailouts and deficits are bigger than anything we observed in the Obama years. We live in a time of unprecedented fiscal and monetary stimulus, and yet eke out economic growth that is historically sluggish.
The bigger issue is that economic growth is unequally distributed across the nation. Large urban places enjoy fast growth, often twice the national rate of about 2%. In contrast, much of the country languishes. At the county level, the U.S. is in a surprising period of economic divergence. The unequal geographic distribution of economic growth makes it difficult to share a perspective about economic growth. Let me offer two examples.
In 1,000 urban counties, a young couple who saves up to purchase a home will see it build enormous wealth over a decade. In 2,000 counties outside of fast-growing cities, the same couple would see almost no real appreciation in their home values over a decade. Economic divergence doesn’t just impact the affluent young couple, but also those at the opposite end of the economy. Imagine a young, single parent living with parents. In a rural community, child care is absent, and a car is required to get to a job for an employer awash in high school dropouts. In a large city, there is typically transportation, much thicker labor markets and more abundant child care options. Neither situation is ideal, but one has many more opportunities than the other.
In short, while there are many reasons to be optimistic about the American economy and tout its performance, there are also many deep weaknesses. In times past, candidates wouldn’t agree on the economy, but most of their debate would be about policies to make it better. That is because there used to be a time when there were real disagreements about the future of economic policy.
Today, we have one political party that is in the midst of vigorous internal debate about the future of economic policy. The other party has eliminated internal debate and possesses no coherent economic policy. This means we risk several months of candidates arguing more about the past than the future. I view this as a form of intellectual and moral torture. My only solace is that this being a republic, we citizens are only getting what we deserve.