Trump’s “Amazing” Economy

Photo source davitydave | CC BY 2.0

Donald Trump has gotten some well-deserved ridicule in response to his boasts about the “amazing” economy. While the 4.1 percent growth figure reported for the second quarter is impressive, it hardly qualifies as amazing. There were four quarters in the Obama years with faster growth. Going back before the Great Recession there were many quarters with much more rapid growth. My favorite is the second quarter of 1978, back when Jimmy Carter was president, and the economy grew at a 16.4 percent rate.

But getting beyond Donald Trump’s conception of “amazing,” the real issues are whether the rate is sustainable and whether Trump’s policies deserve credit. On the second point, his tax cut almost certainly deserves some of the credit for the quarter’s growth. The tax cut is putting more than $150 billion into people’s pockets this year. While it is true that the bulk of this money is going to the rich, who will spend a smaller share of their tax cut than a middle income household, the extent to which they will increase their spending is not zero.

A quick check on whether people are spending their tax cut is the saving rate. If people are not spending the tax cut, the saving rate should jump. There has been a modest increase, with an average of 7.0 percent in first half of 2018 compared to 6.7 percent for 2017. This would suggest that people are spending the bulk of the their tax cuts. This assessment requires an important…

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