# If Trump's economic policies are destructive, why is the US economy so healthy?

One doesn't have to look very hard to find suggestions that Trump's economic policies are damaging to the US economy. Example, example, example, example. In fact I barely recall reading any articles in the mainstream media that said that Trump's policies are beneficial.

However all indications are (example from just earlier this month) that the US economy is extremely healthy.

Why is there a disconnect? Are the economics theories wrong? Is this a case of the economy being too complicated to model, and the results in this case turned out to be incorrect? Are the economists who made those predictions politically biased? Are the indicators imperfect and conceal hidden weakness? I notice that economists also predicted that Erdogan's policies will be destructive for the Turkish economy, and that panned out; I'm wondering why the predictions evidently aren't working for the US economy.

I'm not an economist and know little about the topic, so would prefer an elementary explanation.

• Cutting taxes almost always boosts consumption (pretty fast). Can you detail here what those "example, example" say? Not all "bad" policies have immediate effect... like piling up debt. – Fizz May 6 at 4:46
• Frankly people predicted an investment boom thanks to Trump's tax cuts, but apparently his trade wars nixed that marketwatch.com/story/… – Fizz May 6 at 5:22
• Also, some of those predictions were predicated on things that didn't happen. The Moody's paper assumed that all or at least half the illegal immigrants are evicted (and had two scenarios depending on this and other factors). Predicting recessions that never happened has become a bit of the norm for analysts, starting with Brexit... economics.stackexchange.com/questions/27490/… – Fizz May 6 at 5:53
• In the past, many people argue that Reaganism neoliberalism policies together with Plaza agreement help US government balance the trade deficit. Neoliberalism general take over the world till today. Is it working? Plaza agreement doesn't help manufacturing move back to US. And the social security net simply keep shrinking. Nevertheless, if you are on the "top", you are "prosper" with all sort of short-sighted gain, in addition, the "top" also control most of the media. – mootmoot May 27 at 7:29

(1) Most of Trump's proposed policies have been implemented only to a limited extent or not at all.

He promised dramatic tax cuts. Examples from the June 2016 Moody's analysis you cited:

• Replacing the current seven personal income tax brackets with three and reducing the top marginal rate from 39.6% to 25%.

The Tax Cuts and Jobs Act 2017 (TCJA) cut the top rate, but only from 39.6% to 37%. Also, the seven brackets have remained.

• Increasing the standard deduction to \$25,000 for single filers and \$50,000 for joint filers, and indexing to inflation thereafter.

The TCJA increased the standard deductions from \$6,500/\$13,000 to \$12,000/\$24,000 — an impressive increase, but still less than half of what Trump had proposed. (Note also that these increases in the standard deductions were partly offset by the elimination/restriction of many deductions.)

Trump promised to immediately repeal and replace Obamacare. As of May 2019, this has not happened.

Trump also promised to deport over 11M illegal immigrants. This has also not happened. In fact, under Trump, there have been fewer deportations than under Obama (e.g. in FY2018, there were 256,085 deportations, well below the Obama 2013 peak of 438,421).

The above proposals would have severely damaged the US economy. But none have been fully implemented.

Again it is the case that Trump falls far short of some of the wilder "promises" he made during his campaign (e.g. in Jan 2016, he proposed imposing 45% tariffs on China).

Nonetheless, to the extent that he has been "successful" at waging this trade war, there has been damage to the US economy.

Fajgelbaum et al. (2019) estimate that:

the trade war lowered aggregate U.S. welfare in the short-run by \$7.8 billion, or 0.04% of GDP. Amiti, Redding, & Weinstein (2019) estimate that: by the end of 2018, import tariffs were costing U.S. consumers and the firms that import foreign goods an additional \$3 billion per month in added tax costs and another \\$1.4 billion dollars per month in deadweight welfare (efficiency) losses.

(3) It may be too soon to tell.

Or in economists' jargon, there is usually a policy lag of months or years.

For example, the TCJA just came into effect in the most recent tax season (whose deadline just passed a few weeks ago in April 2019). Even if the TCJA has any effects, it will be a little while before economists are able to measure them.

Also, as the Dec 2018 piece by Nouriel Roubini suggests, it was really only in 2018 and in particular the last few months of 2018 that Trump began to impose his economic policies:

many trusted that at the end of the day, the “adults in the room” would restrain Trump and ensure that the administration’s policies didn’t jump the guardrails of orthodoxy. // These assumptions were more or less vindicated during Trump’s first year in office ... But things changed radically in 2018, and especially in the last few months.

(4) That the US economy is healthy is not evidence that Trump's policies are sensible.

It could be that absent Trump's policies, the US economy might be doing even better. We can't just look at things as they are; instead, we need some sort of a counterfactual analysis.

• So it's hard to argue isn't it? GDP went up even though it seems that Trump is doing the wrong thing. Is he? – user4951 May 21 at 17:15
• @user4951 - You seem to completely discount the fact that the US economy operated at the ZLB for almost a decade. Despite this, our economy remains well, well below pre-crisis potential. Further, the downward trend in unemployment has come almost 1-1 with a downward trend in labor force participation. This entire post rests atop an arguably false premise -- is the economy really so healthy? And to the extent that the economy is healthy, you ought to consider the policy lag mentioned in this answer. – 123 May 28 at 3:00
• What is ZLB? Hello? – user4951 May 31 at 12:26
• @user4951: en.wikipedia.org/wiki/Zero_lower_bound – Oddthinking Sep 10 at 8:06