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Trump’s reversal of Obama’s economic policy = Today’s great US economy

Written By | Feb 21, 2020
Obama's economic policy, Trump, Trump's policies, Negotiator-in-Chief Trump, U-6 unemployment rate, Trump economy

Cartoon by Branco. Reproduced with permission and by arrangement with Legal

WASHINGTON — The economy in the US is the best it has been in more than a decade. And no matter what the media claims, today’s robust economy is due entirely to President Trump’s policies. Notably, these policies included reversing former President Obama’s economic policy. In fact, had Obama done absolutely nothing to tweak the economy, the economy would have been in much better shape when he left office. Instead, Obama’s policies resulted in the slowest recovery ever in US history.

The recovery from prior recessions.

When Obama entered office, the economy was in the middle of a severe recession primarily triggered by the 2008-2009 financial crisis. Normally when the economy enters a deep recession, the Fedeal government retools its fiscal policy to increase growth. The economy usually springs back quickly. But the Obama administration decided to go its own way, contrary to the successful actions of past administrations.

After the recession in 1961, President Kennedy took action to stimulate growth. In 1962 growth was a phenomenal 6.1%. After the very deep recession in 1982, President Reagan took action to stimulate growth.  In 1984, the economy grew at an even more impressive 7.2% annual rate. After the deep recession in 2009, instead of stimulating growth like his predecessors in both parties, Obama took action to cure perceived social injustices. The result was that his “recovery” economy never reached even 3% growth.

When is a stimulus not a stimulus?

Obama did convince Congress to pass a massive spending bill. Typical of Obama’s economic policy measures, this alleged stimulus bill did not stimulate growth, although it did reward unions and other Democratic constituencies for their support. Worse, the Obama “stimulus” increased the annual deficit from $455 trillion in 2008 to $1.4 trillion in 2009 alone. The country still struggles to get the annual deficit down.

Obama’s stimulus package increased unemployment compensation for the unemployed, increased spending on food stamps and welfare and provided health care for the unemployed. While Obama viewed this as a benefit to those in need, the real effect was to allow workers to stay unemployed for a longer time period instead of seeking employment. This tended to slow economic growth. As did Obama’s economic policy in general.

The Affordable care Act tended to slow economic growth.

Obama and his Democrat-controlled Contressional majority thought viewed it as unjust that all Americans did not have health insurance. So he convinced Congress to pass what he and the Democrats called the Affordable Care Act (ACA). Included in the ACA, rammed through Congress despite the clear opposition of America’s voters, were 21 new or increased taxes.  That reduced disposable income and tended to slow economic growth.

In addition, the ACA eventually required all employers with at least 50 employees to provide health insurance for all employees who work at least 30 hours per week. The alternative? Pay a fine in excess of $3,000 per employee per year. This gradually added to the cost of labor for business and tended to slow economic growth.

Obama also felt it unjust that banks took advantage of lower-income borrowers by granting them home mortgages these borrowers simply could not afford. Obama believed, with some reason, that this pattern caused the entire financial crisis. But he ignored the fact that economic policy to a great extent had encouraged this practice.

To stop this “predatory” lending, Obama convinced Congress to pass the Dodd/Frank bill. This massive bill did eliminate predatory lending. But it also reduced all bank lending across the boards, leading almost immediately to economic stagnation..

How to lose the “multiplier effect”

When banks are not lending, the multiplying effect of Federal monetary policy becomes nearly nonexistent. This tended to minimize the impact of the vast increases in the money supply that the Federal Reserve poured into the system. That tended to slow economic growth, mainly because only the wealthiest individuals and corporations could qualify for new loans.

Obama also decided that business routinely – and unjustly – took advantage of consumers. For that reason, mostly through executive order, he quickly imposed thousands of new, highly restrictive regulations on business, all of which Obama felt would protect consumers. But these regulations added to the cost of business and tended to slow economic growth even further, blunting any attempt at economic stimulus.

While economic growth hit 2.9% in 2015 – the best growth rate during the entire 8-year Obama administration – growth soon slowed to 1.6% in 2016. During the fourth quarter of 2016, growth slowed to 1.2%.  The economy was heading for another recession even before achieving any significant recovery.

Had Obama done nothing at all and not passed any legislation, economic growth would have been much better. But every action Obama took tended to slow economic growth. However, the actions he did take tended to “cure” Obama’s perceived social injustices. But without lifting his constituencies out of poverty and dependance on the Federal government.

Trump enters office and reverses Obama’s policies.

In 2017, President Trump became President of the United States despite the frantic (and still ongoing) efforts of the Democratic Party. He immediately eliminated thousands of Obama’s decidedly counter-productive and growth-slowing regulations. US economic growth quickly increased to 2.4%.

Trump also convinced Congress to cut taxes for all Americans. This increased spendable income for consumers and increased capital formation for corporations. With more money in individual pockets and in corporate treasuries, this further stimulated the economy. As a result, in 2018 growth increased to 2.9%. Had the Federal Reserve (Fed) not needlessly increased interest rates eight times from the end of 2016 to the end of 2018, that growth would have easily exceeded 3%. Belatedly, the Fed reversed its policy, allowing the annual growth rate to recover somewhat.

Also Read: January employment numbers point to higher GDP growth this year

Trump also convinced Congress to repeal the growth-stifling portions of the Dodd/Frank legislation. Better yet, last year the Fed actually decreased interest rates three times. They also suspended, at least for now, their deflationary policy of reducing their balance sheet, which effectively shrinks the money supply. This coupled with the Fed’s realization that raising interest rates was counter-productive, should lead to higher growth this year, although the coronavirus remains a “black swan” threat.

America’s current economy, boasting higher growth, lower unemployment, rising wages, and reduced income inequality is all a result of Trump’s growth-inducing policies. Any notion that Barack Obama launched today’s robust economy is pure poppycock. Clearly, Trump’s systematic reversal of Obama’s economic policy has actually created today’s great US economy.

– Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Legal


Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University 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.