Recently economist Paul Krugman gave his opinion about President Trump’s economic policies in the New York Times editorial. Not only is Krugman factually incorrect in his conclusions, but he seems to take a somewhat delusional view of economic conditions. He seems to use alternative facts.
Krugman claims that the high growth in the current quarter is “mainly noise, telling you very little about long-term prospects.” He goes on to say, “Trump’s main policy achievement to date, last year’s tax cut, is basically delivering none of what his backer’s promised.”
Noise means that Krugman believes the current quarter’s growth, likely in the 4% range, is not a real indicator and is merely a random statistic. I wonder what Krugman will be saying by late October when the third quarter GDP growth shows another 4% increase in GDP.
One quarter is not a trend, two or three successive quarters will be.
The recovery from the recession that ended in 2009, has been awful. By any measure, the recovery was the worst ever following a deep recession. After the 1981 recession, for instance, economic growth averaged more than 4.5% for four years. Growth was 7.5% in 1984.
Since 2010 economic growth has averaged about 2%. In fact, President Obama was the first president in history to serve a term in office without having at least one year where economic growth was at least 3%. Krugman calls this 2% growth “remarkably consistent.”
That’s true, but the growth is consistently terrible.
Krugman’s soybean analysis
Krugman further claims that Trump’s trade war has shifted demand for US produced soybeans. In an even more delusional analysis Krugman claims that because of Chinese tariffs on US produced soybeans, China is buying soybeans from Brazil.
That means countries that formally bought soybeans from Brazil are now purchasing US soybeans. It would seem the net effect would be negligible.
Krugman claims that “The perverse result is that the prospect of tariffs has temporarily led to a remarkably large surge in U.S. exports, which independent estimates suggest will add around 0.6 percentage points to the U.S. economy’s growth rate in the second quarter.”
He goes on to say, “Unfortunately, we’ll give all that growth back and more in the months ahead.”
Aside from Krugman’s logic being off, the numbers are too.
Since our annual GDP is about $19 trillion, a 0.6% increase would mean about $29 billion of increased soybean sales will have had to occur in the second quarter of this year alone. Last year there was $28 billion in total soybean sales for the entire year.
It also doesn’t make sense that the growth will be given back and more in months ahead. With or without the tariffs US farmers will still export soybeans either to China or to countries that formally bought from Brazil, particularly if Brazil sells to China.
Krugman is also delusional about the effects of Trump’s tax cuts.
While providing some short-term relief to middle-class taxpayers, the real purpose of the tax cut was to stimulate economic growth. Trump simply looked at the similar income tax cuts from Kennedy/Johnson in 1963 and Reagan in 1982.
In both cases, tax rates were lowered for all taxpayers including the highest income earners.
This increased demand by consumers and increased supply from business. The result each time was a huge increase in economic growth. After Reagan’s tax cut, the US economy went on a 25 year growth spurt, except for small hiccups in 1991 and 2001.
Unbiased economists are forecasting high growth rates for the remainder of this year and for many years to come.
Krugman further notes that about one-third of US stocks are held by foreigners. He says that if the increased corporate earnings eventually go to foreigners, the US economy will not see any growth benefits. The reality is that foreign investors buy US stocks because they are better investments. Even if foreigners receive some of the benefits of tax cuts, they will likely re-invest back into the US economy which provided them with the good returns.
While Krugman says, “The tax cut is utterly failing to deliver..” the reality is just the opposite. GDP will likely grow by at least 4% for the balance of this year. Since the economy never fully recovered from the last recession, the high growth rate will likely continue for years.
Americans will find better opportunities especially for the millions who are currently underemployed. Millions of discouraged workers will re-enter the labor force. Wages and incomes for all well prepared Americans will rise. And Americans will then remember what real prosperity feels like.
And maybe Paul Krugman will understand Trump’s economics.
Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years. @mbusler www.facebook.com/fundingdemocracy