No, Donald Trump has not triggered an economic miracle

A comment in the business section of Frankfurter Allgemeine Zeitung (FAZ), Germany’s leading conservative daily newspaper, argued that Trump’s tax reform and deregulation efforts, combined with low energy costs, are attracting capital to the USA. The author stated that investors appreciate  “hard facts” of this kind. He basically endorsed Trump’s claims that he is making America great again – or at least its economy bigger. The FAZ comment suggested that other governments must follow Trump’s example or lose out.

This stance is overblown, and FAZ and other media outlets should not spread the message. The facts are not as hard as they may appear – after all, the employment, growth and stock market trends have been pretty linear for several years. As Martin Wolf accurately argues behind the FT’s paywall: “Mr Trump is taking credit for the continuation of a post-crisis recovery begun under his predecessor. This is no “brand new” economy. He has been lucky.”

Investors tend to pay attention to business media. Responsible journalists must focus on real-world impacts. They must not fall for fairy tales that serve powerful interests. 

Since taking office, Trump has said a lot, but he has not achieved much of substance. The big exception is the tax reform which, however, is set to massively increase US debt, which is likely to thwart growth eventually. For many years, the FAZ has been warning that governments’ budget deficits are harmful because they reduce the scope for private investments which are needed for long-term growth. Why does that suddenly not matter anymore? Especially now, when the economy is strong and unemployment is low? Don’t investors deserve to be warned? In crisis times, deficit spending can serve to kick-start a depressed economy, but in good times, it really does crowd out private-sector investments.

It is easy, moreover, to praise deregulation in principle. Yes, entrepreneurs and innovators must be free to implement new ideas. It is crazy, however, to do away with regulations that protect the health of the environment and human beings. Even in a free market economy, nobody must enjoy the freedom to harm others or damage the common good.

The depressing truth, however, is that Trump administration is rolling back relevant protections. For example, employers are now no longer required to keep documents concerning work-related injuries. One implication is that it has become harder for injured people to claim compensations. Moreover, the Environmental Protection Agency is working on repealing President Barack Obama’s executive orders that were designed to mitigate climate change. In the short run, such measures reduce burdens on businesses, but in the long run, they lead to massive costs that are born by others.

Just consider global warming. It is estimated, that the three hurricanes that hit Texas, Florida and Puerto Rico last year caused damages worth at least $ 365 billion. Disasters of this kind are becoming more likely because of global warming. Obama’s measures were only steps in the direction of adequate climate protection. More needs to be done, but instead Trump is reversing what has been achieved so far. Insufficient climate protection is not a path to more prosperity, it leads to more calamities.

Some people deny the science of climate change. The vast majority of scientists, policymakers and journalists around the world do not do so, and responsible business journalists must not get carried away by economic statistics that look good, but are only short term. The long-term outlook matters more, and in the case of Trump, it includes ballooning deficits and increasing environmental hazards.

To some extent, economic policymaking in the White House was paradigmatic in past decades. Today, the Trump administration is trying to lead the global community onto an even more unsustainable trajectory than it is already on. Falling for his dubious success narrative is naïve and short-sighted.

It is ill-informed in other ways as well. For example, the growth rate is currently higher in the Eurozone than in the USA. Moreover, consumer debt is growing in the USA, which is a warning sign. Finally, the exchange rate of the dollar is declining. If global investors really believed that the USA was experiencing unprecedented economic miracle, the dollar would be appreciating. These data suggest that the USA is certainly not doing better than Europe, which means that the USA’s success is not as spectacular as Trump pretends.

The greatest problem, however, is that far too many business journalists still fall for simple growth statistics. These data do not tell us anything about sustainability. On the contrary, environmental damages are good for growth, to the extent that they are repaired. If you want to keep Houston’s builders busy, you might just as well burn down that city every 10 years. That would boost growth, but not do anything to improve people’s lives. Oh, and its easier to do than flooding an agglomeration…

Update, 7 Feb. 2018: After this weeks stock market turmoil, the Dow Jones and other indeces don't look so good anymore... For some reason, Trump, who claimed to have made share prices rise, does not feel responsible for their fall. His tweet on the matter today reads: "In the 'old days,' when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!"