Whose Economy Is It?

Trump taking credit for Obama's economy is like someone inheriting millions from his dad and bragging about what a smart businessman he is.

Oliver Griswold, Twitter

 

As seen on Facebook, this is pretty funny. Throughout the Obama years, the anemic economy was blamed on the mismanagement of the Bush Administration. I recall posing the question that, if Romney won, would he be inheriting the Bush or Obama economy? Indeed, Obama's first term saw an average growth rate of less than 1%. His second term was quite a bit better at 2.1% but still anemic by historic standards. Let's explore the numbers, shall we.

 

 

Obama had inherited the worst economy of any president shown and it got worse. He is the first president since Hoover who never saw a year break 3% growth. His best year – 2010 - is worse than Bill Clinton’s worst year -1995. George W Bush does not compare well to Clinton either. The direction of the economy since Clinton left office has not been promising.

 

 

Both Bush and Obama had good excuses for a weak start. Bush had to contend with the Tech Bubble bursting and then 9/11. Obama started his presidency with the economy plunging into the deepest recession since the Depression. On the other hand, both Bush and Obama entered the presidency with plans to expand government. Bush had No Child Left Behind and the Medicare Part D Drug Benefit already in the queue when 9/11 prompted the creation of the Department of Homeland Security. Likewise, Obama entered with the promise of a health care overhaul, an $800 billion stimulus, and what eventually became the Dodd-Frank Act to further regulate the financial sector. Therefore, both entered in difficult economic times with plans to expand the scope and expense of government.

 

President Clinton’s first term had a very respectable average growth rate of 3.3%, despite his raising taxes and trying to nationalize the healthcare system. In 1996, he declared the era of big government to be over. His second term saw a phenomenal average growth rate of 4.4%. Moreover, the federal debt shrank during this period and the government was running surpluses.

 

Expectations play a big role in business investment. If the president comes into office with plans to increase the cost and burden of government, business waits to see how much more burdensome it will be and if its business model will still be profitable. On the other hand, if a president announces plans to reduce the cost of government and reduce regulations, capital starts flowing since the future environment will be better than the current one. Thus, Trump’s stated goals of repealing the Affordable Care Act (less burden), cutting taxes (less cost), cutting regulations (less burden), and reducing the federal workforce through attrition (less cost & burden) all indicate that the business landscape will be better tomorrow than it is today. The Trump Economy started on November 9th.