If there is one thing that seems to influence how people vote, it’s the economy. People want better jobs, better pay, and lower taxes, and they seem to believe that our elected officials have a big hand in this. But the connection between public policy and the economy is tenuous, at best. Sure, if we were to change our policies dramatically, we could sink the economy. Perhaps with a stroke of brilliance we could increase growth and lower unemployment even more. But, in spite of the angry debate over government spending, taxes, and so on, government policy doesn’t change that much and its overall impact on the economy is not that great. During the last four years of the Obama administration, real GDP growth in the U.S. averaged about 2.2%. Although the economy added 11 million jobs and unemployment reached historic lows, this was disparaged as meager and inadequate. It was certainly not enough to lift wages very much, except perhaps for some of the highest paid individuals or those with sought-after expertise.
While a candidate, President Trump in his speeches promised 4%, 5%, even 6% annual growth, closer to developing nations like China that have a burgeoning middle class with many millions of newly educated workers shifting from the old economy into the workforce (as well as vast government-controlled industries such as mining). Once President, he tempered his projections a big, with his administration aiming for 3% sustained growth. While we did break 3% for at least one quarter, we didn’t quite break it for 2017, and we just may break 3% for 2018 with the aid of a $1.5 trillion tax cut along with accompanying government spending.
This is not to say that to get from 2% to 3% isn’t important progress. It is just too soon, and not nearly enough, to say that politicians or policy have addressed the economic issues that voters care about, and certainly we shouldn’t be giving big credit for fractional percentages of GDP growth in a single year. For one thing, we’d have to be consistent, and the change in growth from year 0 to year 2 of both the Clinton and Obama presidencies was much greater (about a 2% increase in real GDP during Clinton’s first two years and nearly a 3% increase in Obama’s first two, although both had a big dip during his first year).
An even worse measure is the stock market. The stock market had a big “bump” during President Trump’s first year, and many like to give him credit for that. He deserves a lot of credit for that, because even with all the tumult, investors like lower corporate taxes and less government regulation and corporate earnings did well. However, I defy you to find a Republican politician who is willing to look at the 2017 stock market numbers and compare them with the 1990’s (when Bill Clinton was president) or the Obama years. Certainly the stock market is tied to the economy, but mostly over the long term, and it’s just not valid to pick one year of stock market return and assign blame or take credit. Right-leaning analysts love to point to the stock market and economic performance of 2009 as something of Obama’s creation, even though its main cause was the housing bubble and the underlying debt crisis that took place going into 2008.
In short, I believe in science and scientific measurement, but without looking at a very long period, it is very hard to draw many conclusions about the associations between public policy decisions (even $1.5 trillion tax cuts!) and the economic prosperity of our citizens as a whole.
2016 was an interesting year in this regard. We were enjoying, although that might be too strong a word, a sustained period of economic growth, U.S. stock markets hit record highs (which, of course, they later eclipsed in 2017 and 2018) in spite of a sputtering global economy, and unemployment was at historic lows (4.7% in 2016 versus 9.5% in 2009).
Yet as the elections unfolded, we may as well have been still in the great recession. Democrats, in part because of Bernie Sanders and his continued criticism of the 1% and the uneven distribution of opportunity, had to point out how much the middle class needed them, in particular how much the middle class needed them more than Republican tax cuts. Republicans, some of whom could only win if they painted a negative picture of the economy, and blamed the Democrats. So really both parties painted the same picture, although they attributed blame differently. The picture is real. Many Americans suffered economically during the great recession, including many who lost their jobs, many who lost their homes, and others who just couldn’t afford what they used to. For the first time, it seemed that a new generation had less economic opportunity than the previous generation. The 1% fared well during the Obama years, because the stock market came back, the economy came back, many of them were able to afford homes in housing markets that later rebounded, and the shortage of individuals who could perform well in the sort of jobs that were being created led to great salaries and benefits for those who could do them (think: San Francisco). But many angry voters felt left behind; their jobs, wages, lifestyle and communities still haven’t recovered.
During 2017, unemployment continued to fall, but it dropped more than twice as much in red states as it did in blue states (from 4.3 to 4.1 percent in blue states and from 4.6 percent to 4 percent in red states). These are small numbers over a relatively short period, and of course as we near so-called “full employment” the locales with higher rates are more likely to have reduced unemployment as those with low unemployment just bottom out. But my home, Washington DC, is a blue state with relatively higher unemployment, and ours didn’t go down like the red states. If this trend continues, you can see it in various ways. It could be seen as a success, because the government is controlled by Republicans, and if they are helping a “base” that was left behind after the great recession, that is what everyone promised to do in the election. Or you could be wary. If a political party helps those who voted for them and doesn’t help those in areas that didn’t vote for them, that can be seen as petty and vindictive — the reason even Republicans in New York and New Jersey voted against the Tax Cut and Jobs act. There’s nothing wrong with helping the base, but in the end we all belong to the same country.