Here’s something that has never happened before: Every month of the year, the stock market closed higher than it opened.
This is merely one indicator of the economic boom 2017 brought us. As 2018 begins, it’s worth recalling what we were told instead would happen.
Recall that just after Trump won in November 2016, markets turned downwards. New York Times blogger and Nobel prize-winning economist Paul Krugman wrote, “If the question is when markets will recover, a first-pass answer is never.” He went on, “we are very probably looking at a global recession, with no end in sight.”
A few hours before Krugman filed that piece, the Dow Jones Industrial Average had closed at 18,332. It hasn’t been that low since, and it has risen a shocking 33 percent, to nearly 25,000 points as this editorial goes to press.
A rising stock market doesn’t always lift all boats, we know — but most other economic indicators are positive.
Rather than Krugman’s recession, we’ve seen Trump’s boom: three quarters of economic growth, and the last two quarters saw growth at a 3 percent rate. When the final growth numbers for 2017 come in, it will certainly be an improvement on 2016, and it could be better than any year in a decade, since before the financial crisis.
The unemployment rate, 4.8 percent the month prior to Krugman’s warning, hit 4.1 percent a year later, our latest reading. That’s the lowest number since 2000. In fact, only 12 months out of the past 570 months have seen an unemployment rate this low.
Median weekly earnings are up about 1 percent so far this year, which could merely be statistical noise, but it’s also equal to the rise earnings saw over eight full years of Barack Obama.
This growth isn’t just happening at the top. In the year’s first three quarters, “wage and salary growth for the likes of factory workers, builders and drivers easily outstripped that for professionals and managers,” the Economist reported. “In some cases, blue-collar pay growth now exceeds 4%.”
Some of Trump’s fans will be tempted to give Trump the credit for this growth. That’s a mistake for a few reasons.
First, many of these trends — the stock market’s growth, falling unemployment, and even rising median wages — began under Obama.
More importantly, one falls into the Fatal Conceit when one posits that the president manages the economy. In fact, what Trump has done right is to decline to manage the economy.
Trump ran promising protectionist trade policy. He hasn’t really advanced that agenda. He also implied he would drastically curb legal immigration. That hasn’t happened. Allowing the free flow of goods, services, and people across the border has been good for the economy. If Trump gets credit for this, it’s credit for not doing what he said he would do.
At the same time, Trump has succeeded in an ambitious deregulatory agenda, which surely has juiced markets and driven hiring.
Even before the tax cuts became law, there’s good reason to think their proposal and path towards passage drove much of the market rally this past month. While we don’t put too much stake in the unseemly spectacle of companies making political and public relations hay of post-tax-cut hiring, we do believe that in the long run, a 20 percent corporate rate will provide upward pressure on stock prices, business investment, and economic growth. A lower rate reduces the distorting effects of the tax code, and reduces the incentive to offshore.
The tax bill could have been much better, mostly by simplifying the code, but it was better than the status quo, and will lead to higher wages in the near term and the long term.
Trump didn’t build the economy. But in 2017, he’s done the right things to not get in its way. Continue doing that, and it will be entertaining to watch what Krugman writes.