US President Donald Trump is about to complete his first year in office. Judging by the non-stop drumbeat of negative coverage in the media, one would think that America is doing horribly.
But the facts on the ground appear different.
The US economy is doing well and remains the envy of every nation. America’s GDP registered a growth of over 3 per cent in two quarters in the same year — something that has not happened in a dozen years. Unemployment is at a 17-year low as more than one-and-a-half million new jobs were created in 2017.
Home ownership is at a record high, as is consumer confidence. The Dow Jones index went past 25,000 points for the first time. Over $5 trillion has been added to the economy as a result of stock market gains.
How in the world did Trump manage to achieve such a feat? Described in the media as childish, incompetent, racist, unintelligent and disorganised, how did he steer the world’s largest economy on to such strong footing?
The answer is rather simple: Trump systematically undid the several rules that President Obama imposed on the economy during his eight years in office — some of the worst performing in America’s history. For every new rule which Trump introduced this past year, he rolled back 22 Obama-era rules. The White House says that agencies have withdrawn or delayed 1,579 planned regulatory actions, including 635 regulations that were withdrawn and 244 regulations made inactive.
Like running a business
While laws and rules may achieve social goals for administrations, they severely constrain businesses and economic growth. Trump, a businessman that he is, believes that society is far better served when the economy is doing well, subscribing to President Reagan’s vision: ‘A rising tide lifts all boats’. If there’s one thing that Trump will always be remembered for, it is that he massively deregulated the US economy in every sector with the intent of unshackling private sector might.
The list is long. He allowed the Keystone Pipeline project to proceed — a proposal which will bring Canadian oil to Texas refineries — that Obama had banned. Trump withdrew from the obligations imposed by the Paris climate accord and the Trans-Pacific Partnership treaty.
He has allowed oil drilling to proceed in Alaska and now proposes to also allow offshore drilling in the waters off the lower 48 states. Trump also loosened regulations to boost coal mining and begun relaxing rules in the banking, securities and trading industries, giving companies in those sectors a huge boost. He got rid of net neutrality rules which had threatened to regulate internet services as a utility. In the tax law, which he recently signed, he got rid of the Obamacare mandate so that it is no longer illegal to not buy government-mandated health insurance.
The private sector has warmed to the Trumpian approach. Businesses hate new regulations and despise uncertainty both from the outcome of the new regulations and the newer regulations yet to come from an activist government. Through his actions, Trump has signalled to the world that America is once again open for business and that his government would treat companies as friends. The result of this has been an explosion in business activity never seen during the Obama years.
Sam Geduldig, a former top Republican congressional staffer, summed it up to Victoria McGrane of the Boston Globe :“The business community and every single industry, whether it’s energy or banking or agriculture, feel like they are no longer at war with their regulators. That has created a level of confidence among the leaders of these industries and the economy that is proving to be successful.”
A lot to learn
For leaders around the world, Trump’s approach is a playbook they can learn from. Take India, for instance. Our government has taken the exact opposite route, tightening rule after rule to reach larger social policy goals, such as rooting out black money, corruption, petty fraud and income inequity. Demonetisation, the new GST regime, and the reach of the government mandating Aadhaar have all naturally slowed commerce. The informal economy, the country’s backbone, has struggled to keep pace with the Utopian vision of our government leaders.
In an excellent critique of India’s economy this weekend, The New York Times , describing the effect of GST, points out that many small businesses began to suffer from something they did not understand. The article quoted Bharat Bhai Kavad, who worked from home with his wife and daughter, sewing lace on garments for a big textile company: “GST, GST, what is this GST?I didn’t know at first what this GST was, and now it’s come from Delhi to Gujarat to Surat to my house.”
It seems that liberal democracies which continue to chase progressive policy objectives continue to pay a hefty price. According to the OECD, the GDPs of major economies including Germany, Japan, Canada, the UK and Italy are likely to fall in 2018 from their 2017 levels, most stuck at growths between one and two per cent. The November forecast shows each of these economies falling even further in 2019. To be sure, India is still doing remarkably well for an economy of its size. The government predicted that India’s GDP would grow by 6.5 per cent in the 2017-18 financial year, a rate which many countries around the world would instantly settle for.
New year, new developments
2018 will be a crucial year for Trump. With his tax cuts unleashed, corporations will rake in huge savings investing in expansion. Households will have excess cash to spend, potentially triggering inflation. The Federal Reserve Bank will have to apply the brakes to cool the economy, raising interest rates.
A year ago, few predicted that the problem of the US economy would be that it may overheat in 2018. If anything, they predicted doom as an unpredictable businessman, immature and brash, would tank everything he touched sitting in the world’s most powerful office. So far, the world is glad that the naysayers have all been proven wrong.