How many times a day, and in how many different presentations, has President Donald Trump suddenly departed from script to exclaim, “This was the greatest economy we ever had, the greatest in the world, the greatest ever, and it all went down because of a pandemic?” A large part of the United States electorate has accepted this political statement, which Trump uses to boost his election chance. Time to burst the bubble he has created around himself and let him know his ego- building statement is entirely false.
Trump does not describe the criteria by which he created the illusion that his economy is the greatest ever. He mentions the words GDP, stock market, and employment. Research the U.S. economy and learn that since 1871, the United States (US) has always had, except for some recessions, the best economy on the world. During the roaring twenties, the US had half of world production, and has only 1/8 of the same during the Trump administration. The best economy ever, for its time, may be more appropriately assigned to the 15th century Chinese Ming Dynasty, when Chinese production was, by far, the largest in the world, capitalism showed a beginning, technology advanced, and wage labor replaced peasant labor.
Almost every U.S. president has seen a substantial rise in the stock market during his or her administration. The Trump administration has only added to the existing trends, which almost all other presidents and administrations have done — nothing unusual or extraordinary.
That is not the real story. The real story approaches the economy from another perspective – examination of economic factors, such as those shown in the following table.
|Gross Domestic Product
|Gross Domestic Product at Purchasing Parity 2019 (1)||$21.4 trillion||$27.3 trillion
Average 2017-2020 (2)
Percent of GDP 2017 est. (3)
Percent of GDP 2017 est (3)
Percent of GDP 2017 est (3)
|Industrial Output 2018 (4)||$3.436 trillion
|Unemployment 2019 (5)||3.87 percent||3.8 percent(urban)|
|Defense Spending 2019 (6)||$684.5 billion||$181.1 billion|
|11 million vehicles, about 13% world market||25 million vehicles, about 28% of world market|
|High Speed Rail 2018 (8)||0 miles||15,500 miles|
|Highway million miles 2018||2.93 US source (9)||2.91 China source (10)|
Not all factors that drive an economy can be examined; the relative importance of each factor cannot be accurately assigned; and each nation has specific reasons for emphasizing a factor. As one example, the United States considers automobile and aviation transportation more important than high-speed rail for passenger traffic. Unless, a nation has conclusive economic superiority, which the United States had for several decades, it is difficult to assign a title of “world’s greatest” economy to any nation. The table shows that the United States economic progress has been limited, and China deserves consideration in being awarded the title of the world’s greatest economy. Start with the Gross Domestic Product (GDP), a favorite statistic for those who boast of America’s prominence.
The GDP is an important factor but it is not the important factor. Due to its skewing by prices for goods and wages to laborers, it is not entirely reliable. A Buick automobile, produced in the USA and sold for $30,000 may be identical to an automobile produced in China and sold for $20,000, but they add differently to the GDP. More accurate is the GDP/PPP, where purchasing power is introduced to correct the limitations of the GDP in evaluating economic progress. By use of this factor, China demonstrates a much larger economy than that of the US.
Another consideration is the value given to components of the GDP. Because goods and agriculture supply the most needed wants to a community, and their purchases generate additional money in the economy, they play a more significant role in the economy. Buyers of hard goods are able to receive credit for purchase of these goods much more easily than those who purchase services. Credit creates money, and money buys the added goods and pays the added wages.
The service economy exaggerates the GDP. One dollar of purchase in the goods economy requires time for feedback before manufacture of other goods and their purchases augment the GDP. Purchases in the service economy only pass the same money quickly from one service to another – go to a doctor who the next day goes to a lawyer, who the next day hires a plumber, who the next day goes to a restaurant. The next day the waiter buys a pair of shoes. The GDP has greatly increased due to the rapid transactions of several services and has delayed the use of the dollar for additional production.
The US service industry has become the more prominent aspect of the economy, and this prominence indicates that labor has fulfilled wants for many material goods. A great economy is a productive economy and not a service, or consumptive economy. Industrial output, whether for domestic or foreign use, demonstrates the robustness of an economy. China greatly leads the United States in industrial output and ability to marshal resources. By rapidly allocating industrial resources to construct two hospitals in two weeks and provide sufficient beds and medical equipment for the fast growing number of COVID-19 patients, China demonstrated its industrial robustness.
Manufacture of wasted goods is another way of increasing GDP. No country is better at this operation than the United States. Its defense appropriations and armament sales exceed those of almost all other nations combined. Want to increase GDP – tax the wage earners, and hire workers to manufacture tanks. Purchases of goods and services are transferred from the taxpayers to the new worker, which maintains the GDP. Government purchase of the tanks adds to the GDP, and the GDP is automatically increased without increasing the money supply.
Given the approximate equality in factors that influence the appearance of US and China economies, other factors tilt the scale — manufacture of the most desired goods, application of new technology to transportation, and size of infrastructure — automobile production, and implementation of high speed rail and construction of highway mileage to improve infrastructure. As the table shows, the Trump administration has accomplished little in construction of high-speed rail, achieving elevated levels of automobile production, and renovating infrastructure. China leads the world in all of these agents of advanced economy, and with technological marvels — high speed trains that operate at 16,000 miles of altitude, construction of several of the longest bridge-tunnel complexes, and most electric vehicles on the road. Yes, China has the largest market, which skews the data. Nevertheless, the greatest economy is an absolute and not calculated on a per capita basis.
What has Trump done to believe he is responsible for the low unemployment numbers and average growth of GDP? He has personally endorsed tax cuts on personal income and corporate profits, deregulation, and trade pact renegotiations. What are the results?
Tax cuts on personal income only transfer purchasing power from the government to the public; they do not increase purchasing power or the money supply. Their effect on GDP is dubious, and they have increased the national debt.
A report at https://www.reuters.com/article/us-usa-economy-investment/1-5-trillion-u-s-tax-cut-has-no-major-impact-on-business-capex-plans-survey-idUSKCN1PM0B0 indicates that tax cuts on corporate profits did not generate a major increase in capital spending, and the spending that did occur, happened for a short period. Trump showed his ignorance of elementary economic news and his devious manner of using his failures to accentuate his self-approving wisdom when he stated, “If I knew corporations would use the tax cuts for stock buybacks, I would never have approved the tax cuts.” As for the personal income tax cut, lowering the corporate tax rate has increased the national debt.
Deregulation trades attention to environmental, unfair competition and ecological problems for some business benefits. Are the tradeoffs worthwhile or meaningful? Where is the data to quantify the results? Does Trump have any information?
Active operations from renegotiations of the trade pacts did not occur until late 2019. Because the data on the worth of the renegotiated agreement will not be available until mid-2020, Trump cannot use the renegotiations in descriptions of his economy. As a sideline to his thinking, Trump has made the outrageous assertion that the tariffs on Chinese imports, which are paid by the U.S. importers and usually raises the price of the goods, were paid by the Chinese government and the Chinese lowered U.S. deficit by adding to U.S. revenues. What!
Do U.S. presidents play much of a role in directing the economy, or is that more a function of the Federal Reserve and congressional budgets? The real GDP increased by $2.7 trillion during Trump’s first three years in office. During the time, the Federal Reserve reversed its decline in balance sheet to reach close to pre-Trump levels and the government deficit increased by $3.2 trillion. Free money buys a lot of GDP.
Trump’s claim of achieving “the best economy that the world has ever had” is a meaningless and self-aggrandizing play on words. When a multitude of factors, rather than a few handpicked factors, is considered, during his term in office, U.S. economic progress has been meager, and China’s economic power might have eclipsed that of the United States.
Dan Lieberman edits Alternative Insight, a commentary on foreign policy, economics, and politics. He is author of the book A Third Party Can Succeed in America, a Kindle: The Artistry of a Dog, and a novel: The Victory (under a pen name). Dan can be reached at email@example.com