WASHINGTON. Adjusted for inflation, median incomes in the US rose to a near-record high in 2017. This is a result of growth in the US economy, which has averaged more than 3% since President Trump took office. Growth accelerated to a 4% rate this past April. The new Trump economy will likely continue its positive trend well into the future and continue to boost American median income figures.
That means median incomes will likely hit a record high in 2018, as continued high growth leads to rising wages, lower unemployment and a higher rate of labor participation. All three result from President Trump’s pro-business, pro-worker economic policies. Under the Trump economy, pro-business policies reversed the growth-stifling policies and endless rule-making that characterized the Obama Administration.
Obama economy: Redistribution vs. Growth
From 2009 to 2014 median income was falling. That’s a result of President Obama’s primary goal of curing perceived social injustices over promoting robust economic growth. Obama viewed it as an injustice that every American did not have health insurance. He also claimed it was unjust that CEOs made hundreds of times more income than the average worker. Likewise, he viewed it as an injustice that banks and big business, in his view, took advantage of consumers.
Obama convinced Congress to pass the widely-detested Affordable Care Act (ACA) in 2010, which provided health insurance to an additional 6% of the population. But since the ACA involved the imposition of 21 new taxes, middle-class income was reduced. This slowed America’s post-Great Recession economic growth and recovery rate to a crawl.
The ACA also forced employers to provide health insurance to all full-time workers or pay a fine which could be as high as $3,000 per employee. This added to the cost of labor, which further slowed growth.
Since Obama defined a full-time employee as anyone working at least 30 hours per week, employers hired more part-time workers. This reduced household income and slowed economic growth.
Soaking the rich and stifling the banks
Obama made the 2001 Bush tax cuts permanent for all Americans except the highest income earners. Unfortunately for them, taxes increased by 10%. That reduced the amount of investment capital going into America’s capital-intensive economy. This also slowed economic growth, and tended to reduce household income as well.
Obama also claimed the financial crisis was a result of predatory lending by banks. That allegedly occurred when households freely applied for mortgages they simply could not afford. Because Fannie Mae and Freddie Mac were buying these predatory mortgages from banks, the banks continued to make those loans.
Obama convinced Congress to pass the Dodd/Frank bill, which stopped banks from predatory lending. The problem was that Dodd/Frank effectively reduced all lending. When banks refrain from lending money, monetary policy can’t help stimulate the economy. But the Dodd/Frank bill reduced lending, particularly consumer lending. This slowed post-recession economic growth substantially and reduced household income.
It is no wonder that Obama was the only president in history to serve not one but two complete terms in office without at least one year of economic growth of at least 3%. Obama averaged just over 2% for his entire eight year term. Deflecting criticism for this sub-par performance, he referred to 2% growth rate as the “new normal.” Unsurprisingly, median household income declined from 2009 through 2014.
Obama claims credit for the Trump economy
Out campaigning for Democrats in late summer, Obama now takes credit for the current robust recovery occurring under the Trump economy. Yet he deserves little if any credit for engineering the early innings of the current turnaround. It was really the Federal Reserve’s easy money policies — nearly tripling the US money supply and dropping interest rates to near zero — that brought the economy out of recession during the Obama years.
Obama had nothing to do with this. Neither did Congress, whose do-nothing attitude was perpetuated by Harry Reid and Nancy Pelosi whether they led Democrat majorities or not. Worse, had it not been for Dodd/Frank, again passed by a Democrat-led Congress, US monetary policy alone would have led to a strong expansion.
Truth be told, under Obama, the economy never really entered the expansion phase. That makes his campaign boasts ring hollow.
The Trump economy: a 180-degree turn from Obama’s redistributionist policies
President Trump reversed Obama’s policies with astonishing speed. Almost immediately, this led to an increase in the US economic growth rate. After entering office in January 2017, Trump spend much of February and March reversing many of Obama’s counter-productive and costly regulations. By April 2017 the Trump economy was already rowing at a 3% rate which has since been maintained or increased.
By the end of 2017, Trump convinced Congress to repeal much of Dodd/Frank and to cut income taxes for all Americans. This also included capital supplying, high income earners and corporations. Unsurprisingly, since April 2018, the economy has grown in excess of 4%.
Making America great again?
That robust growth continues to reduce underemployment increase the labor force participation rate in the Trump economy. It also increases the number of part-time employees finding full-time work while encouraging rising wages and an overall reduction in the unemployment rate.
These positive actions and results have led to ever higher median incomes — a number that will continue to rise. By the end of 2018, median incomes are likely to hit record highs.
Some may argue that most of these increases are going to the highest income earners. While that may currently be the case, as the economy continues to expand under the robust Trump economy, the average American worker will find more and better opportunities as well. And at higher wages.
As John F. Kennedy astutely observed, “A rising tide will lift all boats.”
—Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.