What’s Powering the US Economy?

What's Powering the US Economy?
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Everyone keeps quoting US GDP and jobs numbers that go through what are very often ginormous revisions. The last one we had was earlier this month where job creation for the 12 month period ending in March of 2019, all on Trump’s watch, was corrected to be 500,000 fewer than initially reported by our government. “Steady growth” under Trump, as once again seen used in another (this) article, needs to be considered with caution.

The US economy’s steady growth — the longest stretch since World War II without a recession — is something of a mystery. Last summer, the yield curve inverted, which traditionally is the most reliable signal of an impending downturn. There were all sorts of plausible reasons the economy could take a turn for the worse — a mountain of increasingly risky corporate debt, a slowdown in China, President Donald Trump’s trade war, manufacturing weakness, increasing uncertainty about government policy and so on. Yet no recession has appeared. Gross domestic product growth has been remarkably steady at a little more than 2% — probably the best, on average, that can be hoped for given the aging population and the global productivity slowdown. And the labor market is stronger than at any time except the late 1990s, with workers at the bottom of the income scale getting real wage increases. Why is the economy doing well despite all the headwinds? Trump supporters will tend to credit the president’s late 2017 tax reform. But this is unlikely. If the Tax Cuts and Jobs Act had made the economy more efficient, it would be have led to a surge of business investment. But economics research finds little impact, and real private investment actually decreased in the second through fourth quarters of 2019. It’s also possible, of course, that the tax cut has raised consumption by driving up aggregate demand. Paul Krugman has put this forward as an explanation. It’s also true that under […]

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