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Should Any President Get Credit for a Booming Economy?

Last night, in his first State of the Union address, President Donald Trump welcomed a “new American moment,” saying, “There has never been a better time to start living the American Dream.”
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And by almost any measure, the American economy is strong. The stock market and the GDP are up and unemployment is down. Even wages, which have been largely stagnant since the end of the recession, have made gains over the past two years.

Trump has been quick to claim credit for the boom. In November, he tweeted, “Stock market hit yet another all-time record high … There is great confidence in the moves of my administration.” After signing tax cuts into law late last year, Trump said that the new legislation contained “really tremendous things for businesses, for people, for the middle class, for workers.” The president and GOP leaders predicted increased investment in American business, leading to higher wages and better jobs for American workers.

But how much control does Trump — or any president — really have over the stock market, job growth and other indicators? Set aside for a moment the issue of whether we’re in the first year of Trump’s economy or the last year of Obama’s. Does the president, for good or for ill, own the economy?

Perspective: Yes

If we’re talking about the stock market, some economists feel that Trump deserves credit.

“In the short term, presidents do have a major impact on the rise and fall of the stock market,” says Bob Bruner, current economics professor and former dean of the Darden School of Business at the University of Virginia, in an interview with Fortune. “Presidents can declare intentions to adjust taxes, impose antitrust enforcement on industries–such as Jack Kennedy did–declare war, or undertake military actions without the sanctions of Congress. All of those things dramatically affect the expectations of the capital markets.”

The “Trump Bump” has also increased optimism among business owners, boosting small business confidence to a 12-year high last month, thanks to loosening regulations and lower taxes.

Perspective: No

On the other hand, some economists argue that presidents don’t affect the economy all that much.

Per Neil Irwin at The New York Times:

…the reality is that presidents have far less control over the economy than you might imagine. Presidential economic records are highly dependent on the dumb luck of where the nation is in the economic cycle. And the White House has no control over the demographic and technological forces that influence the economy.

Even in areas where the president really does have power to shape the economy — appointing Federal Reserve governors, steering fiscal and regulatory policy, responding to crises and external shocks — the relationship between presidential action and economic outcome is often uncertain and hard to prove.

There’s also the fact that a better economy for investors isn’t necessarily a better economy for workers, half of whom have nothing saved for retirement at all. If you don’t invest in the stock market, a soaring Dow doesn’t mean much to your bottom line.

And those tax cuts might mean big savings for employers, but it remains to be seen whether those savings will be passed along to workers. Only one-third of the members of the North American CNBC Global CFO Council think that tax reform will lead to higher wages.

If you don’t invest in the stock market, a soaring Dow doesn’t mean much to your bottom line.Click To Tweet

Some employers have offered bonuses to workers, citing tax cuts as the inspiration. For example, Walmart is giving employees up to $1,000 in bonus pay this year. However, Walmart also recently announced layoffs at multiple Sam’s Club locations. Will tax cuts provide gains for workers — or just for investors and business owners?

There are also real concerns about the impact of policies like the recently signed 30 percent tariff on solar panels. Trump has positioned himself as the savior of mining and manufacturing, but green energy creates more jobs than fossil fuels. Policies that undercut growth in renewable energy will hurt workers more than coal-friendly policies can help them.

What Does a ‘Good Economy’ Mean for Workers?

The PayScale Index shows that the buying power of workers’ wages has declined 6.7 percent since 2006. For economic gains to have a positive impact on workers, pay needs to grow faster than inflation. This means real raises, not temporary bonuses.

Workers also need good jobs – meaning, consistent paychecks that cover the necessities of life, plus benefits and the chance to grow. One justifiable criticism of the post-recession recovery was that it hit lower-paying, less-secure service jobs first.

But creating jobs with good paychecks and a solid future is more complicated than loosening regulations or even changing the tax code. Factors like globalization, automation and the decline of labor unions have placed American workers in a precarious position. It would be a challenge for any administration to get them to more solid ground.

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Jen Hubley Luckwaldt
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