John Maynard Keynes was right about one thing: economic dynamism depends on “animal spirits,” that is, the appetite for entrepreneurial risk-taking needs to reach a critical mass for an economy to boom. And this isn’t something that can be easily quantified, though the fact that new business startups under Obama plummeted is certainly one tangible measure of how the economy has been smothered in the Obama years.
Hence, beyond specific reforms Trump is proposing such as tax reform and regulatory relief, his sheer emphasis on getting the economy roaring may well spark a revival of the “animal spirits” from which booms are made.
To the extent the stock market is a good leading indicator, Wall Street seems to think the boom is already under way. The stock market prospered under Obama in spite of him rather than because of him, and the real fuel for it was not economic fundamentals, but zero interest rates by the Federal Reserve and allied central banks. The conventional wisdom has been that once the Fed started raising interest rates back to normal levels—long overdue probably—that the market would flatten or sink. But now that the Fed has signaled clearly that rate hikes are coming soon, the market it rising fast—just as Trump adviser Larry Kudlow has been arguing it would for two or three years now.
The Carrier deal Trump struck is problematic for all of the reasons of principle that have been pointed out, but it is great politics. And great politics may make for good economic outcomes. Already we’ve seen stories of foreign companies announcing intentions to make significant new investment in the United States (though in the case of China this may be a convenient way of getting capital out of the country because of the well-founded distrust of the government), like Foxconn, maker of the iPhone:
Foxconn’s statement came a day after Japan’s SoftBank Group Corp. Chief Executive Masayoshi Son met with Mr. Trump in New York and pledged to invest $50 billion in the U.S. Foxconn’s logo appeared beside SoftBank’s on the piece of paper that Mr. Son held while speaking to reporters.
We’ve got a long way to run. The U.S. Council on Competitiveness and the Gallup organization released a report (PDF file) earlier this week that details how poorly the economy has performed under Obama. The report has some sober graphics, such as this top line look at how badly GDP growth has stagnated.
Separately, the Daily Shot people point us to this Federal Reserve chart of how badly productivity growth has stagnated:
Here’s a more fine-grained look at the recent GDP numbers compared with past cycles:
The report comments:
These differences may seem small, but the mathematics of growth accounting make them extremely important to living standards. If 1% growth continued for the next 35 years, per capita GDP would increase from $56,000 in 2015 to just $79,000 in 2050. With 1.7% growth, GDP per capita goes up to $101,000 by 2050, and with 2.4% growth it enlarges to $129,000. Thus, solving the growth challenge is of major importance to the United States and many other countries around the world.
It is popular these days to say that slow growth is the new normal, but the report disagrees, saying that “Political forces, not technical or scientific ones, are now the chief restraints on growth.” The report doesn’t specifically call out the Obama Administration—or liberalism generally—for its indifference to growth, but the subtext is clear.
The point is: the primal Donald Trump who frightens the media and the coiffed elites may be just the person to revive the animal spirits a dynamic economy needs.