When I was a senior economist for health and energy policy with President Reagan’s Council of Economic Advisers, I wrote parts of chapters in the 1983 and 1984 Economic Report of the President (ERP.) And so, like many former economists in that job, whether in a Republican or Democratic administration, I tend to read each year’s Economic Report carefully. I found this year’s report particularly good. (Although authors are not listed individually, I presume one of them is Joshua Rauh, a Hoover colleague who is the CEA’s Principal Chief Economist.)
I should add that I tend to judge an ERP generously. The reason is that the authors always need to pay attention to the views of their big boss, the U.S. president, and of their colleagues in other agencies of the federal government. So you won’t find this year’s Report being critical of Donald Trump’s policies on trade or immigration, two areas where he favors much more regulation and taxation than the median economist. But the economists who wrote the Report don’t blow kisses at those policies either. And in one footnote, to their credit, they take a risk by pointing out that Trump’s tariffs in 2018 and 2019 imposed a deadweight loss on the U.S. economy of 0.4 percent of GDP per year.
Where the Report’s authors can say good things about Trump’s economic policies and their effects, though, they do. And it turns out there are many good things to say: on the effects of the 2017 tax cut, deregulation, economic growth, unemployment, growth of real wages, increases in household income, and the shale oil revolution. They also have interesting sections on health insurance and health care, and on the threats to growth from too-vigorous antitrust enforcement, the opioid crisis, and housing unaffordability caused by regulation. These last I will deal with in a follow-on article.
These are the opening 3 paragraphs of my latest Hoover article, “A First-Rate Economic Report – I,” February 26, 2020.
Some fantastic data on wages and inequality:
There’s other good news for workers. Whereas the CBO had projected in 2016 that the number of jobs would increase by only 1.9 million by the end of 2019, job growth blew past that projection early. By the end of December, the number of jobs had grown by a whopping 7 million.
Why the big difference? The Report notes that the CBO had assumed that most of the job growth would be from the ranks of the officially unemployed (those who were out of work and looking for work) and little from people who were not in the labor force. But at least for the fourth quarter of 2019, the authors note, 74.2 percent of people getting jobs were those who entered the labor force rather than those previously unemployed. The other nice surprise was the unemployment rate. Whereas the CBO and the Federal Reserve had projected an unemployment rate of 4.5 percent or higher by the end of 2019, it had actually fallen by a whole percentage point more, to 3.5 percent. In 2000, the U.S. Bureau of Labor Statistics (BLS) started collecting data on job openings and compared them to the number of unemployed workers. In every month since then, up to early 2018, the number of unemployed people exceeded the number of job openings. But starting in early 2018, the relationship reversed. For the first time the number of job openings exceeded the number of people who were unemployed and, notes the Report, stayed that way for the next 20 months. A BLS news release from February 11 of this year shows that the streak has now extended to 22 months.
Because wages for workers at the low end of the wage scale have risen by a higher percentage than wages for workers at the high end, income inequality has fallen. Economists often use the Gini coefficient as a measure of income inequality: if all incomes are equal the Gini is 0; if one household has all the income, the Gini is 1. The Report mentions that the Gini coefficient has fallen, but, unfortunately, does not say by how much. A check of their source, a 2019 study by the U.S. Census Bureau, shows that it fell from 0.471 in 2017 to 0.464 in 2018, a drop of 1.5 percent.
Make sure you also read the really good news on the shale revolution and its good effects, including on CO2. I do criticize the authors’ idea that a good effect of becoming more energy independent is that there will be fewer constraints on U.S. foreign policy. There will be, but I don’t think that’s necessarily good.
READER COMMENTS
Alan Goldhammer
Feb 28 2020 at 6:12am
The report is probably useless in light of what the COVID19 outbreak is doing to markets and supply chains.
David S
Feb 28 2020 at 8:52pm
With respect to COVID19, I’m not so sure. It looks like this is more media circus, and less actual harm. The data from China seems to suggest that if you are healthy and not elderly, the virus doesn’t really do much. If you are in the approximately 1/7th of China’s population that are sick or elderly, there is approximately a 15% chance of death if you show symptoms. (Any that do not show symptoms don’t get counted, obviously, and this virus seems to not show symptoms in many cases)
Also, 53 people have been found infected in the US, and none have died. Since the majority of people apparently show no obvious symptoms, it seems likely that there have actually been many times that number of infections with no deaths. (Because if someone dies, effort is put forward to determine the cause – so we would know; whereas if someone is fine or even a little sick we don’t bother seeing if they have COVID19)
So it appears that the reality is that the COVID19 virus is less harmful than expected here in the US. The economic damage here appears limited to media hysteria causing a stock market crash (which should sort itself out as the facts become apparent), and the adverse effects on overseas markets trickling down to our markets.
I think that if someone went on the news and said “we’ve had 53 known cases, and no deaths in the US” that might do a lot of good for the markets. Unfortunately, the media seem intent on making it seem as bad as possible – I guess it sells more ads.
https://www.cdc.gov/coronavirus/2019-ncov/index.html
Thaomas
Mar 1 2020 at 12:56pm
I wonder how the increased deficits produced by the Tax Cut For the Rich Act of 2017 can be good for the evonomy?
David S
Mar 3 2020 at 3:44am
OK, I’ll bite.
The tax rates on the rich preferentially remove capital from the rich. Obviously. But the rich have the highest returns on capital, that’s why they are rich.
But if we can borrow money at 1% interest, and eliminate the taxes on the rich we get both the high returns from the rich peoples capital investment and the, um, return on investment in the government.
So, let’s use some numbers – if the rich have a 10% return on assets, and we can borrow money at 1%, then the total assets go up by 9% a year more if we don’t tax the rich. After 10 years, that is 237% of additional growth. So if we use a ten year payback period, we can break even if we cut the rich people’s taxes by a little more than half.
But, a 10 year payback period is ludicrous for a 1% loan! We should be using 50 years or more. After 50 years, the growth differential is 7436% – so we can virtually eliminate the taxes on the rich and still make more money on taxes in the long run.
QED 😉
Thaomas
Mar 1 2020 at 1:00pm
Likewise how do they calculate the aggregate decrease in net deadweight loss from changes in regulation?
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