Contrary to the forecast of nearly every economist, GDP grew at a 3.2% rate in the first quarter of this year.
The consensus view was that first quarter growth would be about 2.3%. Even with the first quarter number, most economists believe that growth for the entire year 2019 will be less than the 2.9% growth recorded last year.
For the past four years, the first quarter of the year was the slowest growth quarter. It is likely that the economy could see 4% or more growth in the second and/or third quarters of this year. That means for the first time since 2005, annual economic growth will exceed 3%.
Fortunately, the Trump administration has put growth as the number one economic policy goal. This contrasts with the prior administration. The Obama administration’s top economic goal was to cure perceived social injustices. However, each time President Barack Obama took a social injustice corrective action, burdens were placed on economic growth.
Obama perceived it was an injustice that all Americans did not have health insurance. He convinced Congress to pass the Affordable Care Act (ACA) which ended up benefiting 6% of the population or about 20 million people. The ACA raised the portion of the population with health insurance from 85% of Americans to 91%.
But the ACA added costs for business which slowed economic growth. The ACA also increased taxes for all Americans which also slowed economic growth. Obama then raised the capital gains tax rate from 15% to 20% and up to 23.8% for the highest income earners. This reduced new capital formation which tended to slow economic growth
Then Obama reasoned that the financial crisis was caused primarily by predatory lending, which meant that banks granted mortgage loans to individuals who were not capable of repaying those loans. He felt consumers needed to be protected against practices like this, so he had the Dodd-Frank bill passed.
Dodd-Frank did eliminate predatory lending but it also severely restricted all lending. Without lending, there is no multiplying effect of monetary policy. This too tended to slow economic growth.
Obama also added thousands of new regulations so that business could not take advantage of willing consumers. This assumed consumer protection added to the cost for business and slowed economic growth.
Because of the slow growth economy many recent college graduates could not find opportunity. Millions were forced to take jobs for which they were over-qualified and did not need a college degree. Thisunderemployment resulted in lower incomes, which became a real problem since most of those grads had student loan debt.
As a result of the college grads taking jobs which did not require a college degree, those without a degree found no opportunity at all. Millions of workers became so discouraged that they stopped looked for a job and left the labor force. That pushed the labor force participation rate down to near record lows.
President Donald Trump’s economic growth policies are changing the employment picture.
Because Trump has set economic growth as his top policy priority, the employment picture is changing. Underemployed grads are moving up to higher paying jobs that reflect their skill. Discouraged workers are re-entering the job market as they too find new opportunity.
For the past eight months, there have been more job openings then unemployed people, which has allowed wages to rise. Continued economic growth will provide even more opportunities for all well-prepared Americans.
Despite of every Democrat in Congress voting against Trump’s economic policies, more than 90% of media coverage of Trump being negative and some “never Trump” members of his own party against him, he has made near miraculous progress with the economy.
Trump was sworn into office in late January 2017. He spent the next few months eliminating hundreds of unnecessary regulations. Since April 2017, the economy has been growing at more than a 3% annual rate, which is much better than the dismal 2% rate of the prior administration.
The Trump economy is taking off.
Dr. Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University in Galloway, New Jersey, 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.facebox.com/fundingdemocracy