You probably were rubbing your eyes thinking you were having a hallucination yesterday when you saw the headline on the front page of the New York Times, "The Trump Effect: Business, Anticipating Less Regulation, Loosens Purse Strings." Here's the lede:
A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation — and may finally raise wages significantly. While business leaders are eager for the tax cuts that take effect this year, the newfound confidence was initially inspired by the Trump administration’s regulatory pullback, not so much because deregulation is saving companies money but because the administration has instilled a faith in business executives that new regulations are not coming.
Huh? Has the Times suddenly decided to end a full year of Trump bashing and give him credit for accelerating economic growth? Given the depth of Trump hatred up there on Eighth Avenue, that hardly seems plausible. The alternative hypothesis is that there is a wave of exceptional economic news about to come out, and Times wants to put the best possible spin on it before things get out of hand.
As to the economic news that is anticipated but not yet out, my favorite source is the New York Fed's "Nowcast" that provides a day-by-day read on the status of certain indicators used to predict GDP growth in the current quarter. The guys over at Pravda are well aware of the Nowcast. For the just-ended fourth quarter of 2017, the latest Nowcast as of December 29 anticipates GDP growth for the quarter of 3.87%. If that proves out in the final numbers due in several weeks, after growth of 3.1% in the second quarter and 3.2% in the third, it will mean that GDP growth could approach or even break the 3% barrier for 2017 (a level never achieved for a full year in eight years of Obama), and with an acceleration of growth heading into 2018. You will recall that the official Times/Krugman line to justify eight years of sluggish growth and stagnation under Obama was that this had nothing to do with government attacks against the economy and entrepreneurs, but rather reflected a "new normal" of "secular stagnation" in the post-modern economy. (From Krugman, November 2013: "[T]he evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing.")
And is the Times trying to spin the currently-accelerating Trump growth as having little to do with the President's actions? Of course. From the linked article, consider this:
The evidence is weak that regulation actually reduces economic activity or that deregulation stimulates it.
“The notion that deregulation unleashes growth is virtually impossible to find in the data,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who served as the chief economic adviser to Vice President Joseph R. Biden Jr.
Those two lines focus specifically on "regulation" and "deregulation." But how about the more general proposition that government attacks against businesses and entrepreneurs (of which regulations are one example), making their lives difficult or impossible, cause economic growth to slow or stop? Is there any evidence that government attacks on business and entrepreneurs correlate with economic growth or lack thereof?
Actually, there is enormous evidence for that proposition. Probably, if you have studied economic history a little, you haven't been taught about this at all, because instead you learned nothing but Keynesian fallacies. But let's just take some of the most obvious examples:
- When Roosevelt and the New Deal came in in January 1933, you would think that the depressed economy would have been poised to take off. But one of the first things they did in the "100 days" of the New Deal was pass the National Industrial Recovery Act, providing for each industry in the country to impose a "code of fair conduct" on all participants in the industry. Those codes quickly became a parody of micro-managing regulation, fashioned by industry leaders to make life difficult or impossible for upstarts. The NIRA was declared unconstitutional by the Supreme Court in the 1935 Schechter Poultry case, often called the "Sick Chicken" case. The Sick Chicken case involved the "Live Poultry Code," that had been adopted by the poultry industry. Read the case to get an idea of the endless deadening, micromanaging regulations that just this one industry had so quickly managed to impose to tie little guys like Schecter up in knots. The regulations in the Code were enforceable by criminal penalties, and Schechter was an appeal of a criminal conviction. The particular piece of the Code that was the focus of the Schechter case was a requirement that a buyer of live poultry "accept the run of any half coop, coop or coops" -- in other words, they purported to make it so that buyers could not select the better animals and reject the sick ones. The case provides a little window into what happened in just one industry, but this is what the New Deal did on an economy-wide basis. The economy did grow in 1933-36, but way below its potential. At the end of Roosevelt's first term, the unemployment rate was still 16.9%.
- After the Sick Chicken case in 1935 got rid of the NIRA and its Codes, you would think that the economy again would have been poised to take off. Oh, but that's the year they enacted the National Labor Relations Act, sometimes known as the Wagner Act, that created the NLRB and put the government firmly on the side of unions in organizing workplaces. 1936 through 1938 were the glory years of union organizing, including the famous "sit-down" strikes at GM and Chrysler in 1936 and 1937, and the violent battles at Ford in 1938 and beyond. The minimum wage began in 1938. The 1936 campaign is when Roosevelt took to bashing what he called the "malefactors of great wealth." In 1937-38 the weak Roosevelt economic recovery turned into another sharp downturn, sometimes referred to as the "recession within the depression."
- And then there are the Obama years. Obamacare. Dodd-Frank. (I used to keep a copy of the 1000+ page Dodd-Frank Act on my desk to remind me of what crazy over-regulation looks like.) Environmental zealotry run rampant. Labor relations zealotry run rampant. Tax increases. Seemingly it never occurred to anyone in government or the media that any of this might have an impact on economic performance. In this 2013 post I called the overall approach of the Obama administration the "War Against the Economy." Is it any wonder why many entrepreneurs (and potential entrepreneurs) would choose to sit on their hands and wait for a better climate?
Anyway, I can't wait to read all the attempts to explain away the robust economic growth that is about to come our way. Do you think that Paul Krugman is going to be issuing an apology for all of his "new normal" and "secular stagnation" nonsense?