Category Archives: Labor

Jobs Due to Biden’s Infrastructure Plan: What is Being Discussed is Not What You Think

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A.  Introduction

Politicians have always been eager to announce that a program they have proposed will “create jobs”.  The Biden administration is no exception.  Indeed, President Biden has titled his $2.2 trillion proposal to rebuild America’s infrastructure the “American Jobs Plan”.  And all this is understandable, given the politics.  You would be forgiven, however, for assuming that what is being discussed on the additional jobs that would follow from Biden’s infrastructure proposals has something to do with jobs such as those depicted in the picture above.  They don’t.  The numbers on “new jobs created” that are being bandied about are on something else entirely.

There has also been some confusion on how many jobs that might be.  In remarks made on April 2, soon after his initial announcement of the proposed $2.2 trillion infrastructure initiative, Biden said:  “Independent analysis shows that if we pass this plan, the economy will create 19 million jobs — good jobs, blue-collar jobs, jobs that pay well.”  The estimate is from an analysis made by Mark Zandi, Chief Economist of Moody’s Analytics (a subsidiary of Moody’s, the bond credit rating agency).  Zandi is a well-respected economist, who was an economic advisor to John McCain during his 2008 campaign for the presidency and who has advised both Democrats and Republicans.

The 19 million jobs figure is an estimate made by Zandi and his team at Moody’s Analytics of how many more jobs there would be in the US (or, more precisely, non-farm employees) in 2030 as compared to the average number in 2020, in a scenario where Biden’s infrastructure plan is approved as proposed and then implemented.  But it is important to note that this is an estimate of the total number of jobs that “the economy will create” over the decade if the plan is passed (which is what Biden specifically said), and not an estimate of the extra number of jobs that can be attributed to the American Jobs Plan itself.  But it would be easy to miss this distinction.  The Moody’s Analytics estimates are that the number of jobs in the economy would rise between 2020 and 2030 by 19.0 million if the plan is passed as proposed, but by 16.3 million if only the covid-relief plan (Biden’s $1.9 trillion American Rescue Plan) is passed (as it has been), and by 15.7 million in a scenario where neither plan was passed.  Thus in the Moody’s Analytics forecasts, the number of jobs in 2030 would be 2.7 million higher than otherwise if the infrastructure plan is now passed (on top of the extra 0.6 million if only the covid-relief plan were passed).

But it is easy to misstate these distinctions, and some of the administration appointees discussing the proposal with the press at first did so.  In particular, Pete Buttigieg, the Transportation Secretary, and Brian Deese, the head of the National Economic Council in the White House, at first used wording that implied that the full 19 million additional jobs would be due to the infrastructure plan itself.  They later clarified that they had misspoke, and that the Moody’s Analytics estimates were of 2.7 million additional jobs due to the infrastructure plan.  However, this did not keep various news media fact-checkers (including at CNN and at the Washington Post) from taking them to task on it (and for the Washington Post to award Biden “two Pinocchios” in their fact-checking scoring system for being, in their view, misleading).

One can question whether this is quibbling over language that was not fully clear.  But what is of far greater importance is that it misses the fundamental question of what any of these employment forecasts (whether of 19 million, or 2.7 million, or 0.6 million from the $1.9 trillion covid-relief plan) actually mean.  Keep in mind that they are all estimates of how many more people will be employed in 2030 compared to the number employed in 2020, or in a comparison of one scenario for 2030 compared to another.  They are specifically not estimates of the number of jobs of primarily construction workers who would be employed as a direct result of the new infrastructure investments being built.  Yet the wording of Biden, stating that these would be well-paying blue-collar jobs, would appear to indicate that that is what he had in mind when citing the figures.

Furthermore, if the job figures were intended to refer to the blue-collar construction workers who would be hired to build these projects, it does not make much sense to base a comparison on 2030.  By that point the infrastructure plan would be essentially over, with just a small residual amount still to be spent as the program is tailing off (of the $2.2 trillion total, just $81 billion in 2030 and a final $35 billion in 2031 would remain to be spent in the Moody’s estimates).  Few construction workers would still be employed on those projects by that point.  Rather, what may be of interest is not some relatively small change in the overall number of people employed at some end-point, but rather the number of person-years of employment of such workers during the full period of the infrastructure plan.  But the Moody’s estimates are specifically not that.

This then brings up the question of what is Moody’s in fact estimating?  That will be the focus of this blog post.  It is not the number of jobs in construction that will be created as a result of the new work on infrastructure, as these will be down to a fairly minor level by 2030.  As we will see, it is rather an estimate resulting from some secondary aspects of the Moody’s model, and it is not even clear whether the differences were intended to be meaningful.

To start, this post will review how estimates of future employment are traditionally made – for example by the Bureau of Labor Statistics (BLS).  In brief, they are based on population estimates and on forecasts of what share of different population groups will seek to be part of the labor force (the labor force participation rates), with then the assumption that the economy will be at full employment at that future date.  The full employment assumption is made not because the forecaster is confident the economy will in fact be at full employment in that forecast year.  Rather, they do not really know what the short-term conditions will be in that future year, and assuming full employment is just for setting a benchmark.  Unemployment depends on how successful monetary and fiscal policies would have been in that future year to bring the economy to full employment.  Such policies are short-term, depend on the immediate situation, and we have no way of knowing now (in 2021) what shocks or surprises the economy will be facing in 2030.

With this the case, why is Moody’s forecasting any difference at all in the 2030 employment numbers?  The differences are in fact not large when compared to what overall employment will be in that year.  But there is some, and we will discuss why that is.

The post will then look at what one might say on jobs in the intervening years.  While Moody’s has produced year-by-year estimates, its approach for those years (after the next couple of years, as they forecast the economy moves to full employment) is fundamentally similar to what they assume for 2030.  What Moody’s specifically did not do in its analysis was try to estimate the direct number of jobs (or more precisely, person-years of employment) of those employed on the infrastructure projects in Biden’s plan.  Someone will likely do that at some point, but it was not done here.  The question I will then look at it is whether this should be seen as “job creation”.  I will argue that it would be more appropriate to look at it as job shifting rather than job creation, as the total number of jobs in the economy (the number employed) will likely not be all that much different.  And there is nothing wrong with that.  The primary objective, after all, is to build and maintain our badly needed infrastructure.  And on the employment that would follow, providing more attractive jobs that workers will seek to shift into is a good thing.  But the total number employed may not change, and if that is the metric one tries to use, one will likely be disappointed.  Many, including politicians, are often confused about this.

None of this should be taken to imply that the infrastructure plan is not warranted.  It desperately is, as will be discussed in the penultimate section of this post.  The US has underinvested in public infrastructure for decades, and what we have is an embarrassment compared to what is seen in Europe or East Asia.  And it has direct implications for productivity.  Truck drivers are not productive when they are sitting in traffic jams due to our poor highways.  But it is wrong to assess the value of an infrastructure investment program by some estimate of the number of jobs created.  Yes, there will be workers employed on the projects, in likely well-paid jobs.  But that should not be the objective – better public infrastructure should be the objective, achieved as efficiently as possible.  A focus on “jobs created” is instead likely to lead to confusion, as it has with the Moody’s numbers.

We will then end with a short summary and conclusions section.

Finally, note that the version of Biden’s infrastructure plan examined by Zandi and his team was estimated to cost $2.2 trillion over ten years.  However, one will see references to Biden’s plan as costing $2.0 trillion, or $2.3 trillion, or some other amount.  The final amount will depend, of course, on whatever Congress approves, but for consistency I will focus here on the plan as assessed by Zandi, at an estimated cost of $2.2 trillion.

B.  Forecasting Future Employment Levels

Yogi Berra purportedly said:  “It’s tough to make predictions, especially about the future”.  Whether he actually said that is not so clear, but it is certainly true.  And this is especially true of predictions of future employment.  But some things are more predictable than others, and the trick is to make use of factors that change only slowly over time.

In particular, population forecasts for periods of a decade or so are relatively reliable.  Those in a particular age bracket now will be ten years older a decade from now, and all one needs then to adjust for are mortality rates (which are known and change only slowly over time) and net migration rates (which are relatively small in magnitude).  Thus the Census Bureau can produce fairly reliable population forecasts for periods of a decade, and can provide these for groups broken down by age bracket as well as sex, race, and ethnicity.

The Bureau of Labor Statistics starts from such Census Bureau forecasts to produce its projections of the labor force and employment.  The BLS does this annually, with the most recent such projections from September 2000 covering the period 2019 to 2029.  The BLS takes the Census Bureau forecasts for the adult population (age 16 and above), with these broken up into age groups (mostly 10-year groups, i.e. aged 25 to 34, 35 to 44, etc.) and by sex, with overriding checks based on race (white, black, other) and ethnic (Hispanic and non-Hispanic) classifications.  For each of these groups, it estimates, based on a statistical analysis of historical trends, what its labor force participation rate can be expected to be in the projection year.  The labor force participation rate is the share of the population within each group who choose to be part of the labor force (i.e. either employed or, if unemployed, seeking a job).  Labor force participation rates change only slowly over time (as was discussed in this earlier post on this blog), so this is a reasonable approach for estimating what the labor force might be in a decade’s time.

Employment will then be the labor force minus the number who are unemployed.  But there is no way to know beyond the next few years what the unemployment rate might then be.  It will depend on what shocks or surprises there might have been to the economy at that time, and these are by definition not predictable.  If they were, they would not be surprises.  While active monetary and fiscal policy would then seek to bring unemployment down to just frictional levels, how long this will take depends on many factors, including political ones.  And the problem is one that can only be addressed in the near term, as it depends on when the shock came. Thus the Fed’s Board of Governors meets as a group every six weeks throughout the year to monitor the situation, and to decide based on what they know at the time whether to tweak monetary policy through some instrument (normally short-term interest rates, which they may adjust up or, when they can, down, to affect growth).

There is thus no way to know now, in 2021, what the rate of unemployment will be in 2030.  For this reason, to set a benchmark to which comparisons under different scenarios can be made, the BLS and others following this approach assume the economy will be operating at full employment in that projection year.  That is, the benchmark sets unemployment at some specific, low, rate to reflect just frictional unemployment.  While there has been debate on what that specific rate might be (different analysts generally peg it at between 4 and 5% currently), a specific rate would be chosen for the comparisons.  Employment will then be equal to the labor force in that forecast year minus the number unemployed at this assumed rate of unemployment.

[MInor technical note:  The employment figure arrived at in this way will be employment as measured at the individual level, and will include the self-employed as well as on-farm employment.  It will also count as one person employed even if the individual holds multiple jobs.  The employment figures normally cited (and used by Moody’s) are of non-farm payroll employment, which comes from surveys of establishments, excludes the self-employed and on-farm employment, and counts each job even if one person might hold more than one job (as the establishment will only know who they employ, and will not know if some of their employees might hold second jobs).  But the differences due to these factors are small, and adjustments can be made.]

Thus, for any given set of forecast population figures (by age group, etc.), employment will follow from the labor force participation rate and the assumed rate of frictional unemployment (i.e. unemployment when the economy is assumed to be operating at full employment).  Forecast employment in any future year under different scenarios will therefore only differ if either the labor force participation rate, or the unemployment rate (or both), differ for some reason.

C.  The Moody’s Employment Scenarios for 2030

Moody’s Analytics examined three scenarios for 2030 (and the path to it):  A base case where neither the infrastructure plan of Biden nor the covid-relief plan of Biden existed, a scenario where only the covid-relief plan was in place, and a scenario where both are in place.  In the first (base case) scenario it forecasts that employment in the US would rise to 157.9 million in 2030 from an average of 142.2 million in 2020, or an increase of 15.7 million.  In the scenario with only the covid-relief plan, Moody’s forecasts that employment in 2030 would then total 158.5 million, or 0.6 million more than in the base case.  And in the scenario where the infrastructure plan is also passed and implemented, Moody’s forecasts that employment in 2030 would total 161.2 million, or 2.7 million more than in the scenario with only the covid-relief plan passed and 19.0 million more than average total employment in 2020.

But why would employment levels in 2030 differ at all between these scenarios?  As discussed above, they can only differ if labor force participation rates differ or the assumed unemployment rates in that forecast year differ.  (The basic population numbers for that year should certainly not differ.)  In the Moody’s numbers they both do, but it is not clear why.

It is in particular difficult to understand why Moody’s allowed the assumed unemployment rates in 2030 to differ across their scenarios.  The scenario with just the covid-relief plan, which will be over by 2023 at the latest, should in particular not have an impact on the unemployment rate in 2030.  But in the Moody’s figures it does, albeit by only a minor amount (with unemployment at 4.5% in 2030 in the base scenario, and 4.4% in the scenario with the covid-relief plan).

The difference is larger in the scenario with both the covid-relief plan and the infrastructure plan.  Moody’s forecasts that unemployment in 2030 would then be just 3.8%, or well less than the 4.5% rate in the base scenario.  Why would that be?  While there would still be a small amount of spending under the infrastructure plan in 2030 (Moody’s uses a figure of $81 billion in its scenario), the impact of such spending in that year would be small (just 0.2% of forecast GDP in that year) and would in any case have been diminishing over time as the infrastructure plan was being phased down.  That is, the reductions in spending under the infrastructure plan in the outer years, relative to what they would have been a few years before, would (if not offset by other actions) be deflationary at that point, not expansionary.  But regardless of whether Biden’s infrastructure plan had been passed in 2021 or not, one would assume that fiscal and monetary policy would have sought in that future year (2030) to bring the economy to full employment, at whatever the assumed rate of (frictional) unemployment that it then is. There is no rationale for assuming the rate of unemployment in 2030 will differ across the scenarios.

The other difference in the Moody’s forecasts for 2030 under the different scenarios is in the labor force participation rates.  One can work out from the numbers Moody’s provided in its document (coupled with the BLS numbers for the adult population) that the labor force participation rate would be 58.5% in the base scenario, 58.7% in the scenario where only the Biden covid-relief package was passed, and 59.3% if the Biden infrastructure plan is also passed.  (More precisely, these are the Moody’s figures for non-farm payroll employment as a share of the population, not the overall labor force, with the small differences noted above between those two concepts).  Compared to the scenario of the covid-relief plan only, two-thirds (66%) of the extra 2.7 million in employment in 2030 is due to the higher labor force participation rates Moody’s forecasts for that year, and one-third (34%) is due to its forecast of a lower unemployment rate in that year.

Why should the labor force participation rate be higher in 2030 if Biden’s infrastructure plan is passed?  One could postulate a connection, but it would be tenuous and it is not clear if this was in fact intended by Moody’s or was just an outcome following from other relationships in its model.  I do not know enough about the structure of its model to say.  But one can speculate that the model may have linked the labor force participation rate in a forecast year to real wages in that year, with a higher real wage leading to a higher labor force participation rate.  Furthermore, the model might link greater infrastructure investment (or greater investment generally) to higher productivity, and higher productivity to higher wages.  In that case, the higher investment might lead, by such a route, to a higher labor force participation rate.  But this would require estimation of the responses in a series of steps, each of which might be tenuous.  It is difficult to forecast how much economy-wide productivity might rise as a result of such investment; difficult to forecast how much real wages would rise if productivity rises (real wages have been flat since around 1980, even though overall productivity rose by almost 80%); and difficult to forecast how much a rise in real wages might then raise the labor force participation rate.

But this is conceivable.  Whether it was an intended relationship in the Moody’s model is not so clear.  Such models are large and complicated, with a focus on particular issues.  Certain results might then follow, but those constructing the model might not have paid much attention to such outcomes when constructing the model, as the focus was on something else.

In any case, one has to be careful in interpreting the results as implying there would be 2.7 million additional jobs “created” in 2030 as a consequence of the Biden infrastructure plan.  There would, in the model, be 2.7 million more people employed, but this would mostly be due to a higher proportion of the population seeking employment in that year (a higher labor force participation rate).  And assuming an economy at full employment in that year, the additional number seeking employment would translate into that additional number being employed.  But it would be a stretch to interpret this as the infrastructure plan “creating” those additional jobs.  Rather, a higher share of the population are looking for work (a higher labor force participation rate), and are assumed to be able to find it.

D.  The Jobs Directly Created by the Infrastructure Plan

The Biden infrastructure plan would certainly create a huge number of jobs while the infrastructure is being built.  There would be jobs such as depicted in the photo at the top of this post, and with $2.2 trillion being spent there would be a large number of them (even with a share of the $2.2 trillion being spent in high priority areas outside of what is traditionally considered “hard” infrastructure, such as for labor training and health infrastructure).

These would, however, be jobs for a fixed period.  Once the particular projects are finished, those jobs would end.  Thus one should think of these as being so many person-years of employment (employment of one person for one year).  These are not permanent jobs being “created”, but rather workers being employed for a period of time to build a project or to complete a specific maintenance or repair task (e.g. repaving a road).

While not permanent jobs, it would still be important to have good estimates of how many there would be.  Moody’s did not do that, nor was it their intention, but one needs to be clear about that.  It will be important, however, that there be a serious effort at some point to work out such estimates, and I would guess that someone in government is working on this now.  They are needed precisely because there will be a large number who will be employed on these infrastructure projects, and workers with the necessary skills for such work are limited, in part because the US has so woefully underinvested in its infrastructure in recent decades (as will be discussed in the next section below).  It will thus be important to pay attention to the phasing of the individual projects, both over time and geographically, to ensure there will be sufficient capacity (both in terms of the workers needed and the firms that manage such projects) to build the projects at a given place and at a particular time.  It does not help much that there might be workers with the requisite skill in New York, say, when the need is for a project in California.

This will therefore need to be worked out, and I suspect it will be.  This will also guide what workforce development and training needs there will need to be, and the BLS routinely provides such estimates (at least at a broad, economy-wide, level).  But while it is correct to term jobs (or more precisely person-years of jobs) as being “created” under such an infrastructure plan, this does not necessarily mean that the total number of jobs in the economy will be higher.  If the economy is at full employment (and the labor force participation rate otherwise unchanged), the total number employed in the economy will be unchanged.  It is just that some share of those employed will be working on these infrastructure projects.  And that means fewer will be working in other jobs.

That is not a bad thing.  While the overall number employed will be the same, there will be jobs in the infrastructure projects which will have been attractive enough (either due to higher wages that they pay or for some other reason) to draw workers to those jobs.  Those who shift to those new jobs will then be better off, which is good.  Furthermore, the workers shifting to those new jobs would then have left positions that others may find attractive enough to move into (due to a higher wage, or whatever).  Thus there would be shifts across the economy.  Some less attractive jobs would cease to be filled, with employers forced to learn how to make do with less, but that is how competition works.

It is thus not correct to assert the total number employed in the economy will be higher as a consequence of the infrastructure investment plan (aside from during an initial few years as the economy moves to full employment – and Moody’s forecasts that this will be complete by 2022 with the covid-recovery and infrastructure plans enacted and even by 2024 without them).  The total number employed in such forecasts will be largely the same with or without the plans.  But that does not mean they are not without value to workers.  There will be new jobs to be filled, which will need to be attractive enough to draw workers to them.  And that helps workers.

E.  Public Infrastructure Investment in the US

Public infrastructure in the US is an embarrassment.  And it has a direct impact on productivity.  As was noted before, a truck driver sitting in a traffic jam is not terribly productive.  Similarly, exporters of soybeans who have to wait weeks to ship their product due to inadequate capacity at the ports cannot be terribly competitive in global markets (and will have to accept a price cut in order to sell their product).  And so on.

The major reason public infrastructure in the US is so poor is that the US has simply underinvested in it.  Using a broad definition of all government investment excluding that for the military, as a share of GDP, one has (calculated from BEA NIPA statistics):

Government investment peaked in the mid-1960s (as a share of GDP) and has declined ever since.  In gross terms it has been lower in recent years than in any time since the early 1950s.  Net of depreciation, it has been a good deal lower over the last half-decade (to 2019 – the 2020 figure is not yet available) than it has ever been in the last 70 years at least.  (And note that the blip up in the GDP share in 2020 was not because public investment rose.  The rate of growth of gross government investment in 2020 was in fact less than in 2019 and about the same as in 2018.  Rather it was because GDP collapsed in 2020, in the last year of the Trump administration, which pushed the share higher.)

What is of most interest for the state of public infrastructure is such investment net of depreciation.  That is shown as the curve in red in the chart, and it has fallen from a peak of 3.0% of GDP in 1966 to just 0.7% of GDP in recent years (up to 2019), a fall of 77%.  And at such a pace of adding to the net stock of public capital (infrastructure), the stock of such capital as a share of GDP will be falling.  By simple arithmetic, the ratio will be falling if the stock of that capital as a share of GDP is greater than the net investment share of GDP (0.7% here) divided by the rate of growth of nominal GDP.  Taking a nominal growth rate for GDP of, say, 4% (i.e. a real growth rate of 2% and a growth in prices of 2%), then the stock of public capital as a share of GDP will fall if the current stock of that capital is 17.5% of GDP or more (where 17.5% is equal to 0.7% / 4%).  The stock of public capital will certainly be well more than that in any modern economy, including the US.  And that underinvestment is why our highways are becoming increasingly subject to traffic jams, for example.  Our infrastructure is simply not keeping up.

Major public investment will be needed to reverse this, and the Biden infrastructure plan will be a start.  To put things in perspective, I have taken what would be spent annually under the Biden Plan (as estimated by Moody’s), as a share of GDP, and added this to a base amount where I simply assume other government investment in gross terms will remain at the average share it was between 2013 and 2019 (when it was quite steady at about 2.65% of GDP).  The figures for real GDP used for these calculations were those forecast by Moody’s under the scenario that the Biden infrastructure plan goes ahead, with these converted to nominal GDP (for the shares) using the forecast GDP deflators of the Congressional Budget Office.  Spending under the Biden Plan alone would start at 0.5% of GDP in 2023, rise to a peak of 1.3% of GDP in 2025, and then fall to 0.2% of GDP in 2030 and 0.1% in 2031.  Adding these figures to a base level of 2.65%, one would have:

A $2.2 trillion infrastructure investment plan is certainly large.  But the chart puts this in perspective.  Even with such an investment program, public investment would still not rise to as high as it was in the mid-1960s, nor would it last nearly as long.  Public investment had been relatively high (compared to later periods) from the mid-1950s to around 1980 – almost a quarter-century.  The $2.2 trillion Biden plan would raise public investment, but only for about eight years.  A question that will need to be addressed later is what happens after that.  Reverting to the recent, low, levels of infrastructure investment, would eventually lead back to the problems we have now.

F.  Summary and Conclusions

Politicians will always tout the jobs that will be “created” if their programs are approved.  If they didn’t, they likely would not hold office for long.  President Biden is no exception.  And the administration has cited independent estimates made by Mark Zandi’s team at Moody’s Analytics to say that Biden’s “American Jobs Plan” would indeed create a large number of jobs.  They cite Moody’s estimates that the number of jobs in 2030 would be 19 million higher than in 2020 if the infrastructure plan (as well as the covid-relief plan) are approved, and 2.7 million higher in 2030 if that infrastructure plan is approved as compared to a scenario where it is not.

These are, indeed, the Moody’s numbers.  But one should be careful in the interpretation of what they in fact mean, and Moody’s can be criticized for not being fully clear on this.  These are not jobs, generally in construction, that would follow directly from the infrastructure investment program (which should be counted as person-years of employment in any case, as such jobs are not permanent).  Rather, what Moody’s has done has been to use its model of the US economy to examine what overall employment levels would be in 2030 under the various scenarios.  It found that the number employed would be 2.7 million higher in 2030 (1.7% of forecast employment in that year) in the scenario with the infrastructure plan as compared to a scenario without it.  One can calculate that roughly two-thirds of this would be due to a higher labor force participation rate, and one-third due to a lower unemployment rate in that year.

It is not clear, however, why forecasts of either of those two variables – participation rates and the unemployment rate – should differ at all across the scenarios.  I would not be surprised if these were simply unintended consequences in a complex model.  In any case the differences in employment in that forecast year of 2030 are small, as one would expect.  Furthermore, by 2030 the infrastructure plan would be winding down, with only small residual amounts remaining to be spent.

During the course of the 2020s, however, a very significant number of people will be employed on these infrastructure investments.  They will be employed for limited periods until the projects are completed (and hence should be counted in person-years of employment), but this would still be significant.  It will be important to estimate not just how many will be employed and for what periods, but also what skills will be required and where and when they will be required.  This is probably now being done somewhere in government.  But Moody’s did not attempt to do that.

And while such jobs, mostly in construction, can be correctly termed as “created” under the infrastructure investment plan, this does not necessarily mean the overall number of people employed in the economy will be higher.  Unless labor force participation rates would then be higher for some reason (and it is difficult to see why that would be the case) or the unemployment rate is lower (which it cannot be if the economy is already at full employment), the overall number employed in the economy will be unchanged.  What would happen, rather, would be shifts in the job structure, not in the number of jobs overall.  Some workers would shift into the construction jobs needed to build the infrastructure, and others would shift into the jobs these workers had occupied before.  That is all good – the new jobs will need to be more attractive in terms of pay and/or for other reasons for workers to shift to them – but the total number employed (the total number of “jobs”) would largely be the same.

The public infrastructure is certainly needed.  The US has been underinvesting in its public infrastructure for decades, and when account is taken for depreciation it is clear that the net stock of public capital has not kept up with the overall growth of the economy.  That is why roads, for example, are now so often jammed.  The Biden Plan would bring public investment up to levels not seen for decades, although still not matching (even at $2.2 trillion) the public investment levels of the 1960s as a share of GDP.  It is also a time-limited program, which would phase down in the second half of the 2020s.  At some point, this will need to be addressed.  Bringing public investment levels back down to the far from adequate levels of recent decades will lead to the same problems again.  But that will likely be an issue that will not be seriously considered until the next presidential term.

The Pattern of Unemployment: Fewer on Temporary Layoff, but More of the Rest

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A.  Introduction

The economic downturn this year has been unprecedented in many ways.  Millions were laid off in March and April as the country desperately went into lockdowns to limit the spread of the virus that causes Covid-19, following the failure of the Trump administration to recognize the extent of the crisis.  But it was always known that those lockdowns would be temporary (albeit with differing views on how long they would be needed), and hence those laid off in March and April were generally put on temporary layoff.

The number on temporary layoff then started to decline in May, with this continuing (although at a diminishing rate) through November.  This has brought down the headline figure on total unemployment – the figure most people focus on – from 14.7% in April to 6.7% as of November.  But while that focus on the overall rate of unemployment is normally appropriate (as the number on temporary layoff has usually been steady and low, while the labor force has fluctuated little), the unusual conditions of the downturn this year have masked important aspects of the story.  Unemployment is a good deal worse than the traditional measures appear to suggest.

One key issue is what happened to those who were unemployed but not on temporary layoff.  The Bureau of Labor Statistics (the source of the data used here) defines those on temporary layoff to be those who are unemployed but who either have been given a date for when they will be able to return to their job, or expect to return to it within six months.  All other unemployed (defined by the BLS as being in the labor force but not employed, not on temporary layoff, and have taken concrete actions within the previous four weeks to look for a job), include those who were permanently laid off, who completed some temporary job, who left a job by choice (quit), or have newly entered (or re-entered) the labor force actively seeking a job but do not yet have a job.

That distinction – treating separately the unemployed on temporary layoff and the rest – will be examined in this post.  Also important to the story is how many are counted in the official statistics to be in the labor force at all, as that has also changed in this unprecedented downturn.  That will be examined as well.

B.  The Unemployed on Temporary Layoff Spiked Up and Then Came Back Down, but Other Unemployed Rose Steadily

The chart at the top of this post shows the unemployment rates (as a percent of the labor force) for all who were unemployed (in black), for those on temporary layoff (in blue), and for all others who were unemployed (in red).  Unemployment surged, at an unprecedented rate, in March and April of this year.  The increase in those on temporary layoff accounted for this – indeed for all of this in those months in the estimated figures.  The total increase in unemployment in March and April compared to February was 17.25 million; the increase in those on temporary layoff was almost exactly the same at 17.26 million.  (But keep in mind that these figures are estimates based on household surveys, and thus that there will be statistical noise.  That the numbers were almost exactly the same was certainly in part a coincidence.  Still, they were definitely close.)

The total unemployment rate then came down sharply from its April peak of 14.7% to 6.7% as of November.  It was led, once again. by changes in those on temporary layoff, but this time the number unemployed for reasons other than temporary layoff rose.  Their rate was 3.0% in February, which then rose to 5.0% by September.  It has kept at roughly this rate since (although so far with data for only two more months).

That increase – of 2.0% points – is significant but modest.  With all the disruption this year, one might have expected to see more.  Certainly important and effective in partially alleviating the crisis was the $3.1 trillion in several packages approved by Congress in March and April (of new government spending, tax cuts, and new loan facilities).  While adding to the public debt, such spending is needed when confronted with a crisis such as this.  The time to reduce the fiscal deficit would have been when the economy was at full employment.  But Trump added to the fiscal deficit in those years (with both higher spending and massive tax cuts) instead of using that opportunity to prepare for when a crisis would necessitate higher spending.

C.  But the Number in the Labor Force Also Fell, Which Had a Significant Impact on the Reported Unemployment Rates

There is, however, another factor important to the understanding of why the unemployment rate (for those other than on temporary layoff) rose only by this modest amount.  And that is that the number in the labor force abruptly changed.  This was another unusual development in this unprecedented crisis.

The labor force (formally the civilian labor force, as those on active military duty are excluded) changes only slowly.  It is driven primarily by demographic factors, coupled with long-term decisions such as when to retire, whether to attend college rather than seek a job, whether both spouses in a married couple will seek to work or whether one (usually in this society the wife) will choose to remain at home with the children, and so on.

But it was different in this crisis:

The number in the labor force fell abruptly in March and April – by 8.1 million compared to February, or 4.9% of the labor force.  There has never before been such an abrupt fall, at least since 1948 when such data first began to be collected.  The largest previous two-month fall was just 1.0 million, in 1953 when this was 1.6% of the labor force.  (And the month to month “squiggles” seen in the chart above should not be taken too seriously.  They likely reflect statistical noise in the household surveys.)

Those who drop out of the labor force are not counted as unemployed, as formally defined by the BLS, as they are not actively seeking a job.  And the sharp collapse in available jobs in March and April probably contributed to some dropping out of the labor force, as that scarcity of jobs would, by itself, induce some not even to try to find a job if they lost one.  But probably more important in this unprecedented crisis is a parent (and usually the wife) dropping out of the labor force in order to take care of their children when the schools and/or daycare centers closed.  This has never happened before.

Since April, the number in the labor force has recovered some but only partially.  Compared to what the labor force likely would have been by November 2020, based on a simple extrapolation of the January 2015 to January 2020 trend (growth at an annual rate of 0.95%), the labor force in November was 5.4 million less than what it otherwise would have been.

This will have a significant impact on the unemployment figures.  Since the number unemployed are, by definition, equal to the difference between the number in the labor force less the number employed, the number unemployed will be substantially higher if one counts those who abruptly dropped out of the labor force to take care of their children.  These, including others who dropped out of the labor force but would prefer to be employed if labor market conditions were more hospitable, should be counted when assessing how much slack there may be in the economy.  And they can be considered as part of those who are unemployed for reasons other than temporary layoff (as they are similar in nature to those who had, or in this case would have, re-entered the labor force but do not have a job).

Counting such individuals as among those who are in fact unemployed, the labor market does not look to be nearly as strong as the headline figures would suggest.  Assuming that the labor force in 2020 would have continued to grow at the trend rate of the previous several years, that the number employed would have been the same as was recorded, and that the number on temporary layoff would have also been as recorded, the chart on unemployment rates then becomes:

Superficially, this chart may appear similar to that at the top of this post.  But there are two important differences.  First, note the scale is different.  Instead of peaking in April at an overall unemployment rate of 14.7%, the unemployment rate would instead have reached over 19%.  Furthermore, it would still be at 9.7% as of November, which is high.  It is not far from the peak 10.0% rate reached in 2009 following the 2008 economic collapse.

Second, both the path and the levels of the unemployment rate for those other than on temporary layoff are now quite different.  That rate jumps abruptly in March and April to 8.2% of the labor force, from 3.1% before, and then remains at around 7 1/2 to 8% since then.  This a much more worrisome level than was seen above when no correction was made for what has happened to the labor force this year.  There is also no downward trend.  All the gains in the reduction of overall employment since April would have been due to the reduction in those on temporary layoff.

D.  Conclusion

The economy remains weak.  And president-elect Joe Biden is certainly correct that a necessary (although not sufficient) condition for the economy to recover fully will be that Covid-19 be addressed.  Australia, New Zealand, and the countries of East Asia have shown that this can be done, and how it could have been done.  Simply wearing masks would have been central.  Dr. Robert Redfield, the head of the CDC, has noted that wearing a mask could very well be more effective in stopping the spread of the virus that causes Covid-19 than some of the vaccines now under development, if everyone wore them.  But Trump has been unwilling to call on all Americans, including in particular his supporters, to wear a mask.  Indeed, he has even repeatedly mocked those who choose to wear a mask.

As a longer-term solution, however, vaccinations will be key.  But this also depends on most Americans (probably a minimum of 70 to 80%, but at this point still uncertain) being vaccinated.  Even under the most optimistic of circumstances, constraints on vaccine availability alone means this will not be possible before the summer.  But this also assumes that, once available, 70 to 80% of the population (or whatever the minimum share required will be) will choose to be vaccinated.  Given how the simple wearing of face masks was politicized by Trump (and turned into a signal of whether one supports him or not), plus controversies among some on both the left and the right on vaccinations that pre-dates Trump’s presidency, it is hard to be optimistic that such a vaccination share will soon be reached.

Hopefully a sufficiently large share of the population will at some point have chosen to be vaccinated to end the spread of the virus.  But until that happens, further support to the economy, and not least relief to those most affected by the crisis, needs to be passed by Congress and signed by the president.  The House passed such a measure already last May, but Mitch McConnell, the Republican Majority Leader in the Senate, has so far blocked consideration of anything similar.  As I write this, there appears to be a possibility of some compromise being considered in the Senate, but it remains to be seen if that will happen (and if Trump then will sign it).

It is certainly desperately needed.

Trump’s Economic Record in Charts

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A.  Introduction

Donald Trump has repeatedly asserted that he built “the greatest economy in history”.  A recent example is in his acceptance speech for the Republican nomination to run for a second term.  And it is not a surprise that Trump would want to claim this.  It would be nice, if true.  But what is surprising is that a number of election surveys have found that Trump polls well on economic issues, with voters rating Trump substantially above Biden on who would manage the economy better.

Yet any examination of Trump’s actual record, not just now following the unprecedented economic collapse this year resulting from the Covid-19 crisis, but also before, shows Trump’s repeated assertion to be plainly false.

The best that can be said is that Trump did not derail, in his first three years in office, the economic expansion that began with the turnaround Obama engineered within a half year of his taking office in 2009 (when Obama had inherited an economy that was, indeed, collapsing).  But the expansion that began under Obama has now been fully and spectacularly undone in Trump’s fourth year in office, with real GDP in the second quarter of 2020 plummeting at an annualized rate of 32% – to a level that is now even well below what it was when Trump took office.  The 32% rate of decline is by far the fastest decline recorded for the US since quarterly data on GDP began to be recorded in 1947 (the previous record was 10%, under Eisenhower, and the next worst was an 8.4% rate of decline in the last quarter of 2008 at the very end of the Bush administration.

This post will look at Trump’s record in comparison to that not just of Obama but also of all US presidents of the last almost 48 years (since the Nixon/Ford term).  For his first three years in office, that Trump record is nothing special.  It is certainly and obviously not the best in history.  And now in his fourth year in office, it is spectacularly bad.

The examination will be via a series of charts.  The discussion of each will be kept limited, but the interested reader may wish to study them more closely – there is a lot to the story of how the economy developed during each presidential administration.  But the primary objective of these “spaghetti” charts is to show how Trump’s record in his first three years in office fits squarely in the middle of what the presidents of the last half-century have achieved.  It was not the best nor the worst over those first three years – Trump inherited from Obama an expanding and stable economy.  But then in Trump’s fourth year, it has turned catastrophic.

Also, while there is a lot more that could be covered, the post will be limited to examination of the outcomes for growth in overall output (GDP), for the fiscal accounts (government spending, the fiscal deficit, and the resulting public debt), the labor market (employment, unemployment, productivity, and real wages), and the basic trade accounts (imports, exports, and the trade balance).

The figures for the charts were calculated based on data from a number of official US government sources.  Summarizing them all here for convenience (with their links):

a)  BEA:  Bureau of Economic Analysis of the US Department of Commerce, and in particular the National Income and Product Accounts (NIPA, also commonly referred to as the GDP accounts).

b)  BLS:  Bureau of Labor Statistics of the US Department of Labor.

c)  OMB Historical Tables:  Office of Management and Budget, of the White House.

d)  Census Bureau – Foreign Trade Data:  Of the US Department of Commerce.

It was generally most convenient to access the data via FRED, the Federal Reserve Economic Database of the St. Louis Fed.

B.  Real GDP

Trump likes to assert that he inherited an economy that was in terrible shape.  Larry Kudlow, the director of the National Economic Council and Trump’s principal economic advisor recently asserted, for example in his speech to the Republican National Convention, that the Trump administration inherited from Obama “a stagnant economy that was on the front end of a recession”.  While it is not fully clear what a “front end” of a recession is (it is not an economic term), the economy certainly was not stagnant and there was no indication whatsoever of a recession on the horizon.

The chart at the top of this post shows the path followed by real GDP during the course of Obama’s first and second terms in office, along with that of Trump’s term in office thus far.  Both are indexed to 100 in the first calendar quarter of their presidential terms.  Obama inherited from Bush an economy that was rapidly collapsing (with a banking system in ruin) and succeeded in turning it around within a half year of taking office.  Subsequent growth during the remainder of Obama’s first term was then similar to what it was in his second term (with the curve parallel but shifted down in the first term due to the initial downturn).

Growth in the first three years of Trump’s presidency was then almost exactly the same as during Obama’s second term.  There is a bit of a dip at the start of the second year in Obama’s second term (linked to cuts in government spending in the first year of Obama’s second term – see below), but then a full recovery back to the previous path.  At the three-year mark (the 12th quarter) they are almost exactly the same.  To term this stagnation under Obama and then a boom under Trump, as Kudlow asserted, is nonsensical – they are the same to that point.  But the economy has now clearly collapsed under Trump, while it continued on the same path as before under Obama.

Does Trump look better when examined in a broader context, using the record of presidents going back to the Nixon/Ford term that began almost 48 years ago?  No:

The best that can be said is that the growth of real GDP under Trump in his first three years in office is roughly in the middle of the pack.  Growth was worse in a few administrations – primarily those where the economy went into a recession not long after they took office (such as in the first Reagan term, the first Bush Jr. term, and the Nixon/Ford term).  But growth in most of the presidential terms was either similar or distinctly better than what we had under Trump in his first three years.

And now real GDP has collapsed in Trump’s fourth year to the absolute worst, and by a very significant margin.

One can speculate on what will happen to real GDP in the final two quarters of Trump’s presidency.  Far quicker than in earlier economic downturns, Congress responded in March and April with a series of relief bills to address the costs of the Covid-19 crisis, that in total amount to be spent far surpass anything that has ever been done before.  The Congressional Budget Office (CBO) estimates that the resulting spending increases, tax cuts, and new loan facilities of measures already approved will cost a total of $3.1 trillion.  This total approved would, by itself, come to 15% of GDP (where one should note that not all will be spent or used in tax cuts in the current fiscal year – some will carry over into future years).  Such spending can be compared to the $1.2 trillion, or 8.5% of the then GDP, approved in 2008/09 in response to that downturn (with most of the spending and tax cuts spread over three years).  Of this $1.2 trillion, $444 billion was spent under the TARP program approved under Bush and $787 billion for the Recovery Act under Obama).

And debate is currently underway on additional relief measures, where the Democratic-controlled Congress approved in May a further $3 trillion for relief, while leaders in the Republican-controlled Senate have discussed a possible $1 trillion measure.  What will happen now is not clear.  Some compromise in the middle may be possible, or nothing may be passed.

But the spending already approved will have a major stimulative effect.  With such a massive program supporting demand, plus the peculiar nature of the downturn (where many businesses and other centers of employment had to be temporarily closed as the measures taken by the Trump administration to limit the spread of the coronavirus proved to be far from adequate), the current expectation is that there will be a significant bounceback in GDP in the third quarter.  As I write this, the GDPNow model of the Atlanta Fed forecasts that real GDP in the quarter may grow at an annualized rate of 29.6%.  Keep in mind, however, that to make up for a fall of 32% one needs, by simple arithmetic, an increase of 47% from the now lower base.  (Remember that to make up for a fall of 50%, output would need to double – grow by 100% – to return to where one was before.)

Taking into account where the economy is now (where there was already a 5% annualized rate of decline in real GDP in the first quarter of this year), what would growth need to be to keep Trump’s record from being the worst of any president of at least the last half-century?  Assuming that growth in the third quarter does come to 29.6%, one can calculate that GDP would then need to grow by 5.0% (annualized) in the fourth quarter to match the currently worst record – of Bush Jr. in his second term.  And it would need to grow by 19% to get it back to where GDP was at the end of 2019.

C.  The Fiscal Accounts

Growth depends on many factors, only some of which are controlled by a president together with congress.  One such factor is government spending.  Cuts in government spending, particularly when unemployment is significant and businesses cannot sell all that they could and would produce due to a lack of overall demand, can lead to slower growth.  Do cuts in government spending perhaps explain the middling rate of growth observed in the first three years of Trump’s term in office?  Or did big increases in government spending spur growth under Obama?

Actually, quite the opposite:

Federal government spending on goods and services did rise in the first year and a half of Obama’s first term in office, with this critical in reversing the collapsing economy that Obama inherited.  But the Republican Congress elected in 2010 then forced through cuts in spending, with further cuts continuing until well into Obama’s second term (after which spending remained largely flat).  While the economy continued to expand at a modest pace, the cuts slowed the economy during a period when unemployment was still high.  (There is also government spending on transfers, where the two largest such programs are Social Security and Medicare, but spending on such programs depends on eligibility, not on annual appropriations.)

Under Trump, in contrast, government spending has grown, and consistently so.  And indeed government spending grew under Trump at a faster pace than it had almost any other president of the last half-century (with even faster growth only under Reagan and Bush, Jr., two presidents that spoke of themselves, as Trump has, as “small government conservatives”):

The acceleration in government spending growth under Trump did succeed, in his first three years in office, in applying additional pressure on the economy in a standard Keynesian fashion, which brought down unemployment (see below).  But this extra government spending did not lead to an acceleration in growth – it just kept it growing (in the first three years of Trump’s term) at the same pace as it had before, as was seen above.  That is, the economy required additional demand pressure to offset measures the Trump administration was taking which themselves would have reduced growth (such as his trade wars, or favoritism for industries such as steel and aluminum, which harmed the purchasers of steel and aluminum such as car companies and appliance makers).

Trump has also claimed credit for a major tax cut bill (as have Reagan and Bush, Jr.).  They all claimed this would spur growth (none did – see above and a more detailed analysis in this blog post), and indeed such sufficiently faster growth, they predicted, that tax revenue would increase despite the reductions in the tax rates.  Hence fiscal deficits would be reduced.  They weren’t:

Fiscal deficits were large and sustained throughout the Reagan/Bush Sr. years.  They then moved to a fiscal surplus under Clinton, following the major tax increase passed in 1993 and the subsequent years of steady and strong growth.  The surplus was then turned back again into a deficit under Bush Jr., with his major tax cuts of 2001 and 2003 coupled with his poor record for economic growth.  Obama then inherited a high fiscal deficit, which grew higher due to the economic downturn he faced on taking office and the measures that were necessary to address it.  But with the economic recovery, the deficit under Obama was then reduced (although at too fast a pace –  this held back the economy, especially in the early years of the recovery when unemployment was still high).

Under Trump, in contrast, the fiscal deficit rose in his first three years in office, at a time when unemployment was low.  This was the time when the US should have been strengthening rather than weakening the fiscal accounts.  As President Kennedy said in his 1962 State of the Union Address: “The time to repair the roof is when the sun is shining.”  Under Trump, in contrast, the fiscal deficit was reaching 5% of GDP even before the Covid-19 crisis.  The US has never before had such a high fiscal deficit when unemployment was low, with the sole exception of during World War II.

This left the fiscal accounts in a weak condition when government spending needed to increase with the onset of the Covid-19 crisis.  The result is that the fiscal deficit is expected to reach an unprecedented 16% of GDP this fiscal year, the highest it has ever been (other than during World War II) since at least 1930, when such records began to be kept.

The consequence is a public debt that is now shooting upwards:

As a share of GDP, federal government debt (held by the public) is expected to reach 100% of GDP by September 30 (the end of the fiscal year), based on a simple extrapolation of fiscal account and debt data currently available through July (see the US Treasury Monthly Statement for July, released August 12, 2020).  And with its momentum (as such fiscal deficits do not turn into surpluses in any short period of time), Trump will have left for coming generations a government debt that is the highest (as a share of GDP) it has ever been in US history, exceeding even what it was at the end of World War II.

When Trump campaigned for the presidency in 2016, he asserted he would balance the federal government fiscal accounts “fairly quickly”.  Instead the US will face this year, in the fourth year of his term in office, a fiscal deficit that is higher as a share of GDP than it ever was other than during World War II.  Trump also claimed that he would have the entire federal debt repaid within eight years.  This was always nonsense and reflected a basic lack of understanding.  But at least the federal debt to GDP ratio might have been put on a downward trajectory during years when unemployment was relatively low.  Instead, federal debt is on a trajectory that will soon bring it to the highest it has ever been.

D.  The Labor Market

Trump also likes to assert that he can be credited with the strongest growth in jobs in history.  That is simply not true:

Employment growth was higher in Obama’s second term than it ever was during Trump’s term in office.  The paths were broadly similar over the first three years of Trump’s term, but Trump was simply – and consistently – slower.  In Obama’s first term, employment was falling rapidly (by 800,000 jobs a month) when Obama took his oath of office, but once this was turned around the path showed a similar steady rise.

Employment then plummeted in Trump’s fourth year, and by a level that was unprecedented (at least since such statistics began to be gathered in 1947).  In part due to the truly gigantic relief bills passed by Congress in March and April (described above), there has now been a substantial bounceback.  But employment is still (as of August 2020) well below what it was when Trump took office in January 2017.

Even setting aside the collapse in employment this year, Trump’s record in his first three years does not compare favorably to that of other presidents:

A few presidents have done worse, primarily those who faced an economy going into a downturn as they took office (Obama) or where the economy was pushed into a downturn soon after they took office (Bush Jr., Reagan) or later in their term (Bush Sr., Nixon/Ford).  But the record of other presidents was significantly better, with the best (which some might find surprising) that of Carter.

Trump also claims credit for pushing unemployment down to record low levels.  The unemployment rate did, indeed, come down (although not to record low rates – the unemployment rate was lower in the early 1950s under Truman and then Eisenhower, and again in the late 1960s).  But one cannot see any significant change in the path on the day Trump was inaugurated compared to what it had been under Obama since 2010:

And of course now in 2020, unemployment has shot upwards to a record level (since at least 1948, when these records began to be kept systematically).  It has now come down with the bounceback of the economy, but remains high (8.4% as of August).

Over the long term, nothing is more important in raising living standards than higher productivity.  And this was the argument Trump and the Republicans in Congress made to rationalize their sharp cuts in corporate tax rates in the December 2017 tax bill.  The argument was that companies would then invest more in the capital assets that raise productivity (basically structures and equipment).  But this did not happen.  Even before the collapse this year, private non-residential investment in structures and equipment was no higher, and indeed a bit lower, as a share of GDP than what it was before the 2017 tax bill passed.

And it certainly has not led to a jump in productivity:

Productivity growth during Trump’s term in office has been substantially lower (by 3%) than what it was during Obama’s first term, although somewhat better than during Obama’s second term (by a cumulative 1% point at the same calendar quarter in their respective terms).

And compared to that of other presidents, Trump’s record on productivity gains is nothing special:

Finally, what happened to real wages?  While higher productivity growth is necessary in the long term for higher wages (workers cannot ultimately be paid more than what is produced), in the short term a number of other factors (such as relative bargaining strength) will dominate.  When unemployment is high, wage gains will typically be low as firms can hire others if a worker demands a higher wage.  And when unemployment is low, workers will typically be in a better bargaining position to demand higher wages.

How, then, does Trump’s record compare to that of Obama?:

During the first three years of Trump’s tenure in office, real wage gains were basically right in the middle of what they were over the similar periods in Obama’s two terms.  But then it looks like real wages shot upwards at precisely the time when the Covid-19 crisis hit.  How could this be?

One needs to look at what lies behind the numbers.  With the onset of the Covid-19 crisis, unemployment shot up to the highest it has been since the Great Depression.  But two issues were then important.  One is that when workers are laid off, it is usually the least senior, least experienced, workers who are laid off first.  And such workers will in general have a lower wage.  If a high share of lower-wage workers become unemployed, then the average wage of the workers who remain employed will go up.  This is a compositional effect.  No individual worker may have seen an increase in his or her wage, but the overall average will go up if fewer lower-wage workers remain employed.

Second, this downturn was different from others in that a high share of the jobs lost were precisely in low-wage jobs – workers in restaurants, cafeterias, and hotels, or in retail shops, or janitors for office buildings, and so on.  As the economy shut down, these particular businesses had to close.  Many, if not most, office workers could work from home, but not these, commonly low-wage, workers.  They were laid off.

The sharp jump in average real wages in the second quarter of 2020 (Trump’s 14th quarter in office) is therefore not something to be pleased about.  As the lower-wage workers who have lost their jobs return to being employed, one should expect this overall average wage to fall back towards where it was before.

But the path of real wages in the first three years of Trump’s presidency, when the economy continued to expand as it had under Obama, does provide a record that can be compared.  How does it look relative to that of other presidents of the last half-century?:

Again, Trump’s record over this period is in the middle of the range found for other presidents.  It was fairly good (unemployment was low, which as noted above would be expected to help), but real wages in the second terms of Clinton and Obama rose by more, and performance was similar in Reagan’s second term.

E.  International Trade Accounts

Finally, how does Trump’s record on international trade compare to that of other presidents?  Trump claimed he would slash the US trade deficit, seeing it in a mercantilistic way as if a trade deficit is a “loss” to the country.  At a 2018 press conference (following a G-7 summit in Canada), he said, for example, “Last year,… [the US] lost  … $817 billion on trade.  That’s ridiculous and it’s unacceptable.”  And “We’re like the piggybank that everybody is robbing.”

This view on the trade balance reflects a fundamental lack of understanding of basic economics.  Equally worrisome is Trump’s view that launching trade wars targeting specific goods (such as steel and aluminum) or specific countries (such as China) will lead to a reduction in the trade deficit.  As was discussed in an earlier post on this blog, the trade balance ultimately depends on the overall balance between domestic savings and domestic investment in an economy.  Trade wars may lead to reductions in imports, but then there will also be a reduction in exports.  If the trade wars do not lead to higher savings or lower investment, such trade interventions (with tariffs or quotas imposed by fiat) will simply shift the trade to other goods or other nations, leaving the overall balance where it would have been based on the savings/investment balance.

But we now have three and a half years of the Trump administration, and can see what his trade wars have led to.  In terms of imports and exports:

Imports did not go down under Trump – they rose until collapsing in the worldwide downturn of 2020.  Exports also at first rose, but more slowly than imports, and then leveled off before imports did.  They then also collapsed in 2020.  Going back a bit, both imports and exports had gone up sharply during the Bush administration.  Then, after the disruption surrounding the economic collapse of 2008/9 (with a fall then a recovery), they roughly stabilized at high levels during the last five years of the Obama administration.

In terms of the overall trade balance:

The trade deficit more than doubled during Bush’s term in office.  While both imports and exports rose (as was seen above), imports rose by more.  The cause of this was the housing credit bubble of the period, which allowed households to borrow against home equity (which in turn drove house prices even higher) and spend that borrowing (leading to higher consumption as a share of current income, which means lower savings).  This ended, and ended abruptly, with the 2008/9 collapse, and the trade deficit was cut in half.  After some fluctuation, it then stabilized in Obama’s second term.

Under Trump, in contrast, the trade deficit grew compared to where it was under Obama.  It did not diminish, as Trump insisted his trade wars would achieve, but the opposite.  And with the growing fiscal deficit (as discussed above) due to the December 2017 tax cuts and the more rapid growth in government spending (where a government deficit is dis-saving that has to be funded by borrowing), this deterioration in the trade balance should not be a surprise.  And I also suspect that Trump does not have a clue as to why this has happened (nor an economic advisor willing to explain it to him).

F.  Conclusion

There is much more to Trump’s economic policies that could have been covered.  It is also not yet clear how much damage has been done to the economic structure from the crisis following the mismanagement of Covid-19 (with the early testing failures, the lack of serious contact tracing and isolation of those who may be sick, and importantly, Trump’s politicizing the wearing of simple masks).  Unemployment rose to record levels, and this can have a negative impact (both immediate and longer-term) on the productivity of those workers and on their subsequent earnings.  There has also been a jump in bankruptcies, which reduces competition.  And bankrupt firms, as well as stressed firms more generally, will not be able to repay their loans in full.  The consequent weakening of bank balance sheets will constrain how much banks will be able to lend to others, which will slow the pace of any recovery.

But these impacts are still uncertain.  The focus of this post has been on what we already know of Trump’s economic record.  It is not a good one. The best that can be said is that during his first three years in office he did not derail the expansion that had begun under Obama.  Growth continued (in GDP, employment, productivity, wages), at rates similar to what they were before.  Compared to paths followed in other presidencies of the last half-century, they were not special.

But this growth during Trump’s tenure in office was only achieved with rapid growth in federal government spending.  Together with the December 2017 tax cuts, this led to a growing, not a diminishing, fiscal deficit.  The deficit grew to close to 5% of GDP, which was indeed special:  Never before in US history has the fiscal deficit been so high in an economy at or close to full employment, with the sole exception of during World War II.

The result was a growing public debt as a share of GDP, when prudent fiscal policy would have been the reverse.  Times of low unemployment are when the country should be reducing its fiscal deficit so that the public debt to GDP ratio will fall.  Reducing public dis-saving would also lead to a reduction in the trade deficit (other things being equal).  But instead the trade deficit has grown.

As a consequence, when a crisis hits (as it did in 2020) and government needs to spend substantial sums for relief (as it had to this year), the public debt to GDP ratio will shoot upwards from already high levels.  Republicans in Congress asserted in 2011 that a public debt of 70% of GDP was excessive and needed to be brought down rapidly.  Thus they forced through spending cuts, which slowed the recovery at a time when unemployment was still high.

But now public debt under Trump will soon be over 100% of GDP.  Part of the legacy of Trump’s term in office, for whoever takes office this coming January 20, will therefore be a public debt that will soon be at a record high level, exceeding even that at the end of World War II.

This has certainly not been “the greatest economy in history”.