From an economic standpoint, how should we assess President Donald Trump’s first two years in office?
In one month, US voters provide their answer when they go to the ballot box for midterm elections, which tend to be a referendum on the sitting president. According to the Pew Research Center, 60 percent of Americans say their vote on November 6 will be a judgment on President Trump’s performance.
Two Business School economists — Dean Glenn Hubbard, the Russell L. Carson Professor of Finance and Economics, and Charles Calomiris, the Henry Kaufman Professor of Financial Institutions — recently gave their assessment of the market consequences of Trump’s tenure at a conference hosted by Columbia University’s Center on Capitalism and Society. The big picture answer: It’s complicated.
“I think President Trump did, by his election and by some of his rhetoric, help reset expectations for growth, and that is not an easy thing to do,” Hubbard said. “Unfortunately, simultaneous to that has been the introduction of a lot of noise that makes it very difficult for people looking for those shifts in expectations to do something about it.”
Hubbard’s outlook: “Despite early successes in tax policy and regulation, there’s a huge missed opportunity for Trump if he’d only grab it.”
Edmund Phelps, winner of the 2006 Nobel Prize in Economics and director of the Center on Capitalism and Society, opened the conference by describing Trump as a populist who won the presidency by exploiting resentment against elites and anxiety over stagnant wages and the outsourcing of work.
“In my view,” said Phelps, “it has become — over the long era of weakened dynamism bringing slow growth and low life satisfaction — a new responsibility on the shoulders of the nation’s president to take reasonable measures to regain the prospering and the flourishing — the true greatness — of our storied past. Has Trump taken any steps toward that goal?”
To that question, while Hubbard criticized the administration’s actions on trade as bad for competition and productivity, he credited Trump for several financial reforms over the past two years: the Tax Cuts and Jobs Act, signed into law in December 2017, and a rollback to the Dodd–Frank Wall Street Reform and Consumer Protection Act, signed in May 2018. Hubbard also said he supported the Federal Reserve appointments of Jerome Powell and Richard Clarida as chair and vice-chair, respectively. Clarida is an economics professor at Columbia University.
Calomiris, too, noted a rise in both the stock market and median wages under Trump. He cited a recent slideshow from the White House Council of Economic Advisers showing rising new business applications and near-record-high small business optimism.
“There’s been significant economic progress in the last two years and you can’t reasonably argue that it’s unrelated to some of the policies of the Trump administration,” said Calomiris, who is also a distinguished visiting fellow at the conservative Hoover Institution. “There probably hasn’t been a time when there’s been such an increase in positive animal spirits.”
But the economic growth may come with political blowback. The soaring market has spurred the Federal Reserve to raise interest rates, which is expected to push up the cost of home mortgages. Calomiris has recent research showing that voters tend to punish incumbent presidents for contractions in the supply of home mortgage credit.
Rana Foroohar, a Financial Times columnist who also spoke on the panel, criticized the administration for exacerbating a financial bubble fueled by low interest rates, cheap debt, tax subsidies, and tax cuts for the wealthy. “We’ve changed from an economy focused on growing Main Street to growing Wall Street,” she said.
To the point of how to include more Americans in the country’s economic growth, Calomiris spoke of nurturing “new generations of competitors.” He cited a recent paper, “Are US Industries Becoming More Concentrated?” which found that most sectors have experienced an increase in concentration levels over the past two decades owing to lax enforcement of antitrust regulations and high technological barriers to entry.
Hubbard said that if he were advising the US president — as he did from 2001 to 2003 when he was chair of the Council of Economic Advisers to George W. Bush — he would focus on promoting the market entry of new firms and new technologies, be it through public-private partnerships on management or avoiding dual labor markets where superstar firms monopolize top talent.
“What could be done is to get more people in the boat before you speed it up,” Hubbard said. “Traditional conservative rhetoric is about raising growth, obviously a good thing to do. Part of the political economy of the moment, though, is suspicion of policies that might do that because of the view that they might not participate in that [growth].”
Along with improving access to the economy for all, Hubbard said he would advise returning to “the notion of fiscal sustainability.” Fiscal reform under Trump could include border tax adjustments, a carbon tax, and reforms to healthcare and entitlements, Hubbard said.
“I think the focus could be on competition, on inclusive growth, and on work,” said Hubbard.
About the researcher
R. Glenn Hubbard
Professor Hubbard is a specialist in public finance, managerial information and incentive problems in corporate finance, and financial markets and institutions. He has written...Read more.
About the researcher
Charles W. Calomiris is Henry Kaufman Professor of Financial Institutions at Columbia Business School, Director of the Business School’s Program for Financial...Read more.