The reality, however, is far different than that perception and what the President described last night. Yes, economic conditions are undoubtedly still improving but the rate of that improvement has actually been slowing for the last couple of years and that slowing trend continued in 2017.
Wage growth has actually been slowing for the last two years and slowed further in 2017. Job growth has been slowing since the 2014, and continued to slow in 2017. Prime-age employment to population ratio, although largely driven by demographics, has been rising but is still below levels reached in both 2000 and 2007. GDP was up 2.3% in 2017, a slight improvement on 2016 but below the levels of 2014 and 2015.
Last night, Trump touted the improvement in unemployment for blacks and Hispanics, with both reaching historic lows. But the reality is that black unemployment dropped from 12.7% to 7.8% under Obama. It has dropped from 7.8% to 6.8% under Trump. Hispanic unemployment dropped from 10.1% to 5.9%. under Obama. It has gone from 5.9% to 4.9% under Trump. Trump also touted these big corporate investments, but, so far, the Trump investment boom is a myth. Investment growth in 2017 was mediocre at best and was largely driven by the oil sector in response to rising oil prices, rather than any Trump policy.
As Vox notes, "In fact, by the standards Trump used to trash the Obama era in his speech to Congress, the Trump era has been another economic nightmare. 'Ninety-four million Americans are out of the labor force!' he complained last year. That was true at the time, if you included students, retirees and the disabled, but today, 95.5 million Americans are out of the labor force. 'Over 43 million Americans are on food stamps,' Trump said last year. This year, it’s still over 42 million. 'Our trade deficit in goods last year was nearly $800 billion!' Trump marveled. Under Trump, the trade deficit is increasing." Of course, those Trumpian standards are hardly a good way to measure the health of the economy anyway but even by those standards Trump's policies have not created a rousing success, rather merely staying the course.
Now, none of this counts as bad news. But the trend of slowing growth is not a good sign. And there are other warning signs out there. Paul Krugman points out that it looks like much of the more recent GDP growth may have been fueled by Americans depleting their savings. Personal savings have declined in both 2016 and 2017 and are now below the levels we saw right before the financial crisis. As Krugman says, "saving can’t keep falling, and you wonder whether households are getting overstretched again."
There is even a warning sign in Trump's favorite measure of his success, the stock market. Despite its record highs and the fact that other markets around the world are also booming, the American market is far pricier compared to the underlying corporate earnings than other world markets. The current price/earnings ratio is 34 which, as Kevin Drum advises us, "is lower than it was at the height of the dotcom bubble, but higher than Black Tuesday of 1929, the height of the 1960s bull market, Black Monday of 1989, and the height of the housing bubble."
So what is accounting for the great perception that the economy under Trump has vastly improved. As usual, it is partisan politics and an extreme reaction from the Republicans. As soon as Trump was elected, not even inaugurated, Republicans' opinion of the economy began to shift dramatically. By the time Trump was inaugurated, Republicans' opinion of current conditions had improved by a whopping 40 percentage points or more. By the middle of 2017, it was nearly a 60 point improvement and the change in economic confidence among Republicans was 70 points. Democrats' opinion of the economy also began to change for the worse but not nearly by the same margins as Republicans' improved. So, once again, the media perception was totally driven by the attitudes of the most partisan Republicans.
No one expects a President to lay out detailed proposals in the State of the Union. But it is a chance to provide the leadership and guidelines for policies that the President would like to pursue. Besides the four pillars of immigration reform, which both parties deeply dislike, Trump offered absolutely nothing, relying instead on Congress to provide some solution. On infrastructure, Trump's plan is to call on "the Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment we need. Every Federal dollar should be leveraged by partnering with State and local governments and, where appropriate, tapping into private sector investment — to permanently fix the infrastructure deficit". That really translates into less than $1.5 trillion in federal spending but still provides no roadmap on how to get there. On opioids and prescription drug prices, the President offered nothing more than empty, future promises, having had a whole year to address those issues and done nothing. On opioids in particular, his only concrete proposal was to claim without evidence that reducing immigration would also reduce opioid addiction.
Even Trump's desire to reduce immigration is bad policy. Facing a growing aging population and a smaller base of young workers, the US needs more immigration to increase or even sustain economic growth. Otherwise, we end up going down the route that Japan has endured for the last two decades. There, the working age population peaked in 1997 and has been falling ever since. While its per-worker GDP shows its work force is still highly productive, its demographics determine the country's overall GDP. Partly because of that low growth environment, the country is now facing a fertility crisis, with its population predicted to drop by one-third by 2065, and creating unprecedented economic and social disruption. And, here in the US, as my friend Doug Weeden points out, "Fifty-one percent of U.S. companies valued at over $1B+ were founded by immigrant entrepreneurs".
But what was even more disturbing about Trump's speech is how it assiduously ignored the two greatest looming crises of the coming years, climate change and artificial intelligence. These two issues alone will cause more disruption to the country's and the world's economy than anything Trump talked about.
One of the reasons for the surge in illegal immigration from Latin America under Bush and Obama as well as the surge in violence in that region was that coffee rust, a result of climate change, devastated the coffee industry in that region. While Trump hailed the response and fortitude of the American people in responding to the natural disasters over the last year, most of which is predicted by climate change, Puerto Rico still has more than a million people without power and 20% of the island still has no water.
Artificial intelligence (AI) is predicted to eliminate nearly 40% of the jobs in the United States alone in the next 15 years. A new MIT study estimates over half a million jobs will be lost to AI over the next five or six years in just the trucking, assembler, and customer service industries alone. We have already seen the devastating effects of globalization on certain workers and communities in this country over the last two decades, as well as the ineffective response of the government to adequately respond to that crisis. AI will be globalization on steroids and, despite Trump's lofty rhetoric about fighting for the working man, that threat is not even on his radar.
Perhaps Puerto Rico sadly provides some insight into the future based on Trump's policies. For years, the island's economy struggled. But those problems were papered over by the tricks of financialization and the government's willingness to ignore the problems. The island was already bleeding its young and talented before climate change created a catastrophe. And now, FEMA is leaving an island still devastated and suffering while Trump praises the response and tells us "There has never been a better time to start living the American Dream". That might be the dystopian future nightmare for our country under Trump's policies.
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