On Tuesday night, President Trump spent a good portion of his first State of the Union address boasting about the economy. He talked about the stock market, which is on an unprecedented nine-year run; he talked about low unemployment, which sits near a historic low; and he talked about wages, which are starting to rise after many decades of stagnation. These positive pronouncements stand in stark contrast to the economic portrait painted by progressives like my colleagues and me at the Roosevelt Institute. So what gives?
The bottom line is that many of Trump’s claims are faulty or overstated and, even where we have seen promising developments, there remain many underlying reasons to be worried about our economy. In this post, I attempt both to qualify Trump’s claims where they are exaggerated and to explain progressive hesitancy where it may seem unwarranted.
“The stock market has smashed one record after another, gaining $8 trillion in value. That is great news for Americans’ 401k, retirement, pension, and college savings accounts.”
The stock market is indeed going gangbusters. The Dow Jones has set record after record and is up 40 percent since Trump’s election. No one disputes this, it just doesn’t mean very much to most Americans: According to NYU’s Edward Wolff, the richest 20 percent of the country own 93 percent of all stocks, and about 50 percent of the country own none at all. Trump’s reference to 401(k)s would be a clever way to remind workers that they too are benefiting from the stock market boom, if not for the fact that only 32 percent of workers possess these accounts. So, for those concerned with the welfare of the bottom 80 percent of Americans, the stock market simply doesn’t mean very much.
Furthermore, as exciting as these Wall Street gains are to those who are invested, progressives hearing about a stock market streak might find themselves preoccupied with streaks of a more foreboding variety: First, every Republican president since Teddy Roosevelt has presided over an economic recession. Second, every single four-year period of unified Republican government (the presidency plus both chambers of Congress) has corresponded to a full-fledged banking crisis.
A downturn now or in the next few years would certainly erase the meager recovery average Americans have experienced, and so touting the strength of the stock market is not only politically risky for Trump, but reminds us of the fragility of our economic position.
“Unemployment claims have hit a 45-year low. African-American unemployment stands at the lowest rate ever recorded, and Hispanic American unemployment has also reached the lowest levels in history.”
To some extent, Trump is right to celebrate continued job growth. After all, our current unemployment rate of 4.1 percent is historically low and unemployment among African-Americans sits at an all-time low of 6.8 percent. However, there are many reasons to question these figures and the general optimism that Trump displays on the issue (not least of which, the fact that we still live in a country where having brown skin roughly doubles your chances of joblessness).
For starters, the unemployment rate is not the only way to measure the labor market. The employment-to-population ratio (EPOP, for short) includes the long-term unemployed, which the unemployment rate leaves out. Looking at this statistic, we see that employment levels have still not recovered from their pre-recession high, resulting in roughly an additional 2.5 million Americans out of work.
And beyond the number of jobs, quality and pay is still very much in question. For example, Princeton’s Alan Krueger found that from 2005 to 2015, net job gains could be explained entirely by the growth of “alternative work arrangements” — meaning part-time, contract, and on-call work. These are not the stable, high-paying jobs that lay the foundation for a robust middle class, and with the Republican party’s continued hostility towards labor unions, progressives remain deeply concerned about the value of the jobs we are creating.
“Since we passed tax cuts, roughly 3 million workers have already gotten tax cut bonuses — many of them thousands of dollars per worker.”
As Trump reminds us here, the passage of the Tax Cuts and Jobs Act was followed, in rapid succession, by the announcement of corporate bonuses from dozens of mega-corporations like Walmart and AT&T. As stunts go, this was an expert one, allowing Home Depot co-founder Bernie Marcus to go on Fox News and talk about how $1,000 will make a world of difference to his hard-working employees. But the bonuses are just that — a cheap ploy and nothing more.
Since Marcus was so eager to tout them, let’s take Home Depot’s bonuses as an example: First of all, $1,000 over a year of full-time work equates to less than a 50-cent-per-hour raise — better than nothing, but quickly consumed by a fender-bender, broken cell phone, or any other minor calamity. Second, reports from CNBC state that $1,000 is actually the maximum bonus, being awarded only to Home Depot employees of 20 years or more, meaning most employees will get much less. Finally, as the Los Angeles Times points out, even if Home Depot were to hand every single one of its 380,000 employees a check for $1,000, that would amount to only 2.5 percent of its recently-announced three-year $15 billion share buyback program, which will increase Home Depot’s stock price and benefit its wealthy shareholders, but do nothing for its workforce. Not as generous with a little context.
The same is true of tax-break-bonuses more generally: According to the Joint Committee on Taxation, Trump’s regressive tax reform package will hand businesses a $669 billion windfall over 10 years. For comparison, consider these examples from The New York Times:
Bank of America’s bonuses will cost the bank $145 million in 2018, or about 5 percent of the nearly $2.7 billion in savings it is expected to reap in 2018 from a lower corporate tax rate. Apple’s bonuses will cost $300 million, a fraction of the $40 billion, at least, that the tech giant is saving from a single provision in the law, which allows it to return earnings held overseas at less than half the rate it would have paid under the old system.
And two days before Walmart snagged glowing headlines for handing out $400 million in bonuses and lifting its minimum wage at a cost of $300 million, the nation’s largest retailer by sales unveiled a plan to buy back company-issued debt. The cost of the buyback: $4 billion.
“After years of wage stagnation, we are finally seeing rising wages.”
As Trump points out, wages for the average American worker have stagnated both relative to inflation and productivity for more than 40 years: Productivity (the measure of how much the average worker produces) has grown nearly 75 percent since 1973, compared to scarcely 12 percent for average hourly wages; for 80 percent of the workforce, wages were actually 2 percent lower in 2016 than they were in 1972. Americans are just now starting to reclaim the losses incurred during the 2008 financial crisis, with a comparatively strong 2.5 percent bump from 2016 to 2017, according to CBPP. This is good, but skeptical progressives are cognizant of the fact that this may be as far as wage recovery goes if policymakers don’t put workers first.
For recent wage growth to continue, Congress must start acting in the interest of average Americans rather than their employers. For its part, the Federal Reserve must keep interest rates low and begin experimenting with other expansionary tactics as described in a recent paper by my colleague J.W. Mason. Worker protections — a non-starter under the Trump administration — are another necessity, as is infrastructure investment (of the sort that lines roads rather than Wall Street pockets). Of course, getting these, or any working class wins, seems unlikely under President Trump, so this should help explain progressive pessimism.
“Small business confidence is at an all-time high.”
Certainly it’s hard to disagree with the value of small businesses (although Matt Bruenig makes an interesting point to the contrary here). But it’s telling that Trump cites the sentiment of small businesses rather than any actual small business statistics. If Trump did paint a more quantitative picture, he would have had to confess that, while start-up and failure rates of small businesses have improved steadily since the depths of the financial crisis, they are still lower and higher, respectively, than more favorable levels maintained during the ’80s and ’90s. It is likely no coincidence that this decline has paralleled growing concentration among our largest and most profitable firms — a trend that Trump pledged to address during the campaign but has failed to acknowledge since.
Trump’s reference to sentiments belies the fact that he has done nothing to improve an entrepreneur’s chance of success. His tax reform package was a boon to large, established corporations and the rich that, if anything, will place smaller firms at a greater relative disadvantage. The future of small businesses, like the future of American workers, is increasingly imperiled.
“There has never been a better time to start living the American Dream.”
In fact the opposite is true. Raj Chetty shows that the percentage of children earning more than their parents fell from 92 percent for the cohort born in 1940 to roughly 50 percent for those born in 1984. Similar trends have been unearthed by economists from the Federal Reserve Bank of Minneapolis, the University of Massachusetts-Boston, and others.
So while, with wages growing and inflation under control, the economy seems copacetic, it is what lurks just below the surface that concerns progressives: Investment is low relative to profits, new business formation is down, and already-high levels of inequality are about to get much worse when top-heavy tax reform kicks in. Lacking investments in infrastructure, education, and the social safety have crippled our country’s physical and human capital, and Trump’s policies promise only more of the same. The ruling party seems intent on dismantling the social safety net, meager remaining worker protections, and nearly every other regulation that protects the non-rich. A recession any time in the next several years will entirely erase the modest recent gains of the middle class.
Despite the president’s claims, reasons for concern abound.
Also published on Medium.