Watered with liberal tears

How the American economy did under Donald Trump

An international comparison

In his new book Casey Mulligan offers an intriguing explanation for why President Donald Trump makes outlandish economic claims. 

Mr Trump knows he is hyperbolising when he says that America has enjoyed “the greatest economy in the history of the world” on his watch, suggests Mr Mulligan, who was until recently the chief economist on the president’s Council of Economic Advisers. 

It is a “strategy for getting the press to cover a new fact, which is to exaggerate it so that the press might enjoy correcting him and unwittingly disseminate the intended finding”. Journalists’ dislike for Mr Trump, according to Mr Mulligan, blinds them to many of the administration’s genuine economic successes. He may have a point.

Assessing leaders’ economic records is fraught with difficulty. Presidents typically get credit when the economy is doing well and blame when it does badly—but short-term economic outcomes are usually more influenced by central banks, demography and what is happening in the rest of the world, among other factors. 

Even today, political scientists continue to argue over whether the economy in the 20th century did better under Democratic or Republican administrations. All this is of little use to the American public, whose vote for a president must be based, in part, on a real-time assessment of economic competence.

Mr Trump came to power with unrealistic promises to create 25m jobs and supercharge economic growth, and to that end cut taxes and boosted spending, widening the fiscal deficit (see chart 1). Economists will continue to weigh up the specific costs and benefits of those policies. 

A true evaluation will take some time. At present, however, it is possible to assess whether the American economy overall did better or worse under Mr Trump. That involves comparing actual American economic performance, on the one hand, with what an impartial spectator could reasonably have expected, on the other. 

To that end The Economist has gathered a range of economic data, from business investment to wage growth, wherever possible comparing American economic performance to that of other rich countries.

The bulk of the analysis covers the period from 2017, when Mr Trump took office, to the end of 2019. We stop in 2019 in part because some data are released only annually, and in part because the pandemic has turned economies across the world upside down. 

Our conclusion is that, in 2017-19, the American economy performed marginally better than expected. (That conclusion remains if we follow the practice of some political economists, who argue that the influence of presidents on the economy can be discerned only after a year in office, and limit our analysis to 2018-19.)

Take gross domestic product (gdp), a measure of output which is the most common yardstick of economic performance. gdp growth was somewhat faster in 2017-19 than it was in either Barack Obama’s first or second term, according to official data. America also did well relative to other countries. 

The world economy peaked in 2017. In 2018 it slowed but America accelerated. In 2019 America slowed too, but stayed ahead of others.

Another way to look at this question is to assess whether America in 2017-19 exceeded or fell short of economists’ expectations (see chart 2). 

In October 2012 the IMF forecast that in the subsequent four years (those of Mr Obama’s second term), the American economy would grow by an annual average of 3%. 

In fact that proved to be too optimistic; it actually grew by closer to 2% a year. But the imf was too pessimistic in its projections for 2017-19, released shortly before the election of 2016. In those years America outperformed the forecasts.

But if the American economy did better than expected in some respects, it disappointed in others. Take the corporate sector, which Mr Trump helped with lighter taxes. 

Corporation-tax cuts did increase post-tax earnings, one reason why the American stockmarket has done relatively well since Mr Trump came to power (see chart 3). 

America has also become a more favoured destination for foreign direct investment (see chart 4). But there is little evidence of the promised business-investment boom (see chart 5).

America’s labour-market performance is similarly nuanced. Though Mr Trump particularly likes to boast about monthly employment figures, it is hard to make the case that in 2017-19 the jobs machine was whirring. Jobs growth was slower than it had been during Mr Obama’s second term. 

In 2009-16 America’s unemployment rate fell relative to the average for other G7 economies (see chart 6). 

Under Mr Trump unemployment did fall to the lowest since the 1960s, but this was not internationally exceptional. America’s improvement relative to employment in other countries stopped under Mr Trump.

The lot of working-class Americans, however, definitely improved in 2017-19. 

Comparing household incomes between countries is difficult, certainly for recent years. 

But though there is some dispute about the reliability of the data gathered in 2020, where the pandemic made it difficult for researchers to conduct surveys, there is clear evidence of an acceleration in the growth of America’s median household income from 2017 onwards (see chart 7). 

A tight labour market also helped raise the wage growth of the lowest-paid Americans, relative to others, to a degree not seen since Bill Clinton was president (see chart 8).

And what of the economy in 2020? Mr Trump’s loose fiscal policy before the pandemic left America with much higher debt going into the crisis. On top of that splurge, this year America has implemented the world’s largest fiscal package (see chart 9), posting stimulus cheques worth up to $1,200 per person and temporarily bumping up unemployment-insurance payments by $600 a week. 

It is possible, though unlikely, that Congress will pass even more stimulus before the election. Even without another package, however, and even though it is enduring a deep recession, 

America will probably be the best-performing G7 economy in 2020—perhaps by some margin. Just before the pandemic, the American economy looked slightly stronger than other rich countries. 

Before long, the gap may be more impressive. 

Cities are too resilient to be killed by Covid

The imagined idyll of rural teleworking is merely an economic chimera

Robin Harding

© James Ferguson/Financial Times


Working from home during Covid-19 has given birth to a dream and a nightmare.

The dream is to move to the countryside and still earn a white-collar wage; cutting deals while pruning the garden, pitching prospects from a ski chalet or doing the accounts before a stroll along the beach. 

The nightmare — abandoned offices, empty restaurants and collapsing property values — is for those who own and rely upon cities.

Urban doom has been prophesied many times before, for example after the 9/11 terror attacks in New York, but video conferencing over fast internet connections makes it seem more plausible this time around. “NYC is dead forever,” according to former hedge fund manager James Altucher.

But while the fear is understandable, it ignores the vast gains in wages and productivity fostered by cities, which arise in ways that teleworking cannot replicate. Sell up and move to the countryside at your peril. The city will be back.

That cities increase productivity is well-documented. A doubling of city size raises productivity per head by 3 per cent to 8 per cent, depending on the country. That implies people in a city of 16m will produce almost 30 per cent more than those in a city of 500,000.

Urban density, as well as city size, also tends to boost productivity. Higher labour productivity leads to higher wages, offset to a greater or lesser degree by the cost of urban housing.

However, productivity has not collapsed during Covid-19, even though workers have been locked up in their homes.

Perhaps, then, the city is just a collection of highly educated people and the office a way to co-ordinate them? After all, if staff can see each other, talk to each other, and work in shared documents over the internet, is there any need for physical proximity?

The evidence on exactly how cities raise productivity suggests that yes, there is.

One reason is that workers learn in cities. The economists Jorge de la Roca and Diego Puga tracked people who moved between large and small cities. Around half of their gain in productivity came simply from the fact of working in a bigger city.

But the other half accrued over time as the employee learnt: if they moved back to a smaller city, they kept that part of the productivity gain as well. In a big city you can work with the best, get yelled at for your mistakes, and find out what it takes to be national or world-class. Try doing that on Zoom.

Companies learn too. A worker hired from your rival down the street brings a new perspective on how to do things. An award ceremony with your competitors motivates you to

That is why, when an area wins a new manufacturing plant, the productivity of local rivals rises by 12 per cent over the next five years, according to estimates by Michael Greenstone, Richard Hornbeck and Enrico Moretti.

Large cities allow for a multitude of specialist services and a better matching of workers to jobs, and companies to customers. A derivatives trader in Louisville, Leeds or Lyon will surely find a use for their skills, but they are unlikely to be half as productive or well-paid as in London, New York or Singapore.

Nor is it just about work: for education, medicine and even romance, the pool is deeper in the big city.

Finally, cities promote innovation. There are various studies of technology clusters that show how inventors tend to live near one another.

A recent study by David Atkin, Keith Chen and Anton Popov uses mobile phone location data to show how Silicon Valley workers bumping into each other in coffee shops leads to an increase in patent citations by their firms. Video conferencing companies, by contrast, have gone to great lengths to secure their calls against chance encounters.

All of these effects work over time. The existing web of job matches and corporate knowledge does not vanish during a few months of working from home. That helps explain why office productivity has held up during Covid-19. But new learning, innovation and matching can only take place when urban life r

Another reason to live in the city is the amenities of art, music, food and theatre. They may suffer greater long-term damage from Covid-19. As a result, people who live in cities solely for the amenities and not the economic opportunities, such as retirees, may choose to leave.

But to the extent that they do leave, it should reduce the price of urban housing, attracting young people who are there for the jobs.

Ultimately, everything depends on Covid-19. All the mechanisms that make cities so productive are still there, but they are dormant until it is again possible to go to the office, attend a job interview or meet up in the coffee shop.

If the pandemic were the first of many, or if coronavirus infection remained a constant threat, then the city would be in trouble. But all past experience suggests there will eventually be a treatment, a vaccine or the pandemic will burn itself out.

Once that happens, the strengths of the city will reassert themselves and everyone will trudge back to the office. In the city, they will enjoy productive lives and dream, just occasionally, of how sweet it would be to work from home in the countryside.

 The History Behind America’s History Wars

When history becomes worth fighting over, it begins to exist. And, crucially, the fight is now occurring in the mainstream of American media, politics, and culture, rather than on the fringes of academia, as in the past.

Jorge G. Castañeda

MEXICO CITY – Henry James once reportedly said, “If you scrape Europe, you will find history. If you scrape the United States, you will find geography.” 

This lack of a shared sense of history in America is on stark display today in the protests over deep-rooted racial injustice and debates over the removal of Confederate monuments and names honoring racist political leaders.

The presumption that Republicans are better than Democrats at economic stewardship is a longstanding myth that must be debunked. For all Americans who care about their and their children’s future, the right choice this November could not be clearer.

Compared to others, Americans’ shared history is very short. Those who colonized – and later immigrated to – North America had a variety of motives, whether religious, political, or economic. But in virtually every case, they were fleeing their past.

When they arrived in the New World, the settlers did not latch onto an indigenous history or culture. Native Americans were nomadic, unstructured, and isolated, and had scant contact with the English or Dutch settlers, who established their own colonies on the lands they appropriated and effectively hit the “reset” button on their history.

But the story is more complicated still. In the early seventeenth century, when tobacco emerged as a cash crop in Virginia, the settlers purchased slaves from Africa. The slaves’ African history was extirpated, but their experience of the New World was very different from that of the slave owners.

This meant that when the US achieved independence in the eighteenth century, it lacked a common foundation. To paraphrase Tocqueville, the US was born late, and without a history at the outset. In fact, the country had no shared memory to speak of until the late nineteenth century, after George Bancroft wrote a history – one way, as Jill Lepore has noted, to turn a state into a nation-state.

But the US still lacked some of the mythic pillars of nationhood: a common origin, a common past, and a common path from past to present. And what individuals or societies lack, they tend to neglect. 

That is why, while Americans often cite a few foundational myths, historical perspective rarely appears in public discourse or political rhetoric, let alone everyday conversation.

This carries over to the highest levels of decision-making – with serious consequences. Consider foreign policy. The history of Vietnam – from its conflicts with China centuries ago to its resistance against the French beginning in the 1920s – should have convinced Presidents John F. Kennedy and Lyndon B. Johnson to resist involvement in the Vietnam War. 

Likewise, Afghanistan’s history – beginning with the long list of foreign invaders who have been subdued by its geography – should have showed President George W. Bush that launching a full-scale war there was futile. In both cases, US leaders and their advisers knew the history, but disregarded it.

To be sure, countries with both longer histories and a more developed sense of history have also found themselves bogged down in interminable wars; France’s catastrophic adventures in Vietnam and Algeria are a case in point. And there is no guarantee that a more history-conscious US would have avoided its mistakes in Vietnam or Afghanistan.

But, without history, Americans are missing something – and they seem to feel that. 

They have sometimes invented the history they lack, transforming individuals or events into monuments, celebrations, and remembrances, often long after they lived or occurred. 

Almost all of the statues honoring Confederate figures throughout the American South – there are more than 700 – were erected after Reconstruction and as late as the 1950s.

Today, Americans are increasingly recognizing and highlighting the inconsistencies in the stories they have been told, especially with regard to race. This has become fuel for today’s political, ideological, religious, and ethnic clashes over the truth about – and meaning of – America’s past.

The current historical controversies mainly involve the Civil War and slavery. But they extend to many other episodes, including the decimation of Native American communities, the Japanese internment camps during World War II, and the Chinese Exclusion Act.

A crucial battleground for these history wars is school textbooks. For example, in some school districts, Advanced Placement US History textbooks affirming that the Civil War was waged primarily over slavery – specifically, the desire to preserve an economic system that depended on forced labor – have been banned. 

The textbooks these districts use insist that the fight was really over states’ rights.

The mythification of the 1836 Battle of the Alamo has been similarly contested. In Texas, the story has become emblematic of so-called Texan freedom fighters’ “heroic” resistance to oppression and their struggle for independence from Mexico. And that is how it has long been taught in the state’s schools.

But this interpretation ignores what the Alamo’s defenders were fighting for: an independent republic where they would have the right to own slaves. (At the time, more than a quarter of the state’s English-speaking population was enslaved, and the share was growing.) 

Indeed, the supposed “heroes” were mostly mercenaries, responding to calls from New Orleans slave merchants and, covertly, from President Andrew Jackson, who sought eventually to annex the territory.

That is why, in 2018, working groups of educators and historians advised the Texas State Board of Education to eliminate the term “heroic” from seventh-grade textbooks. 

After a lengthy and passionate debate, however, the term was retained. There had been too much pushback from Texas Governor Greg Abbott, among others.

Although nothing changed in that case, when history becomes worth fighting over, it begins to exist. 

And, crucially, the fight is now occurring in the mainstream of American media, politics, and culture, rather than on the fringes of academia, as in the past. 

One hopes that today’s debates amount to more than partisan fireworks and, instead, herald the advent of history in the American narrative.

This commentary is adapted from the book America through Foreign Eyes.

Jorge G. Castañeda, a former foreign minister of Mexico, is a professor at New York University and author of America Through Foreign Eyes.

 Russia Plays It Cool With Belarus

The only actor that is confident about the future of the election drama is Moscow.

By: Ekaterina Zolotova

On Sept. 23, Alexander Lukashenko officially took office as president of Belarus again. 

It wasn’t your typical inauguration ceremony, the date of which was kept secret until recently and which was attended by only 700 or so government officials. 

Anti-government protesters, already upset about what they consider a sham election, are even angrier. Protests this Sunday are expected to be even larger than the previous Sunday’s, which boasted 100,000 people.

It’s unclear how exactly this will shake out. On the one hand, Lukashenko hasn’t completely cracked down on the protests, and efforts to do so may fail. 

On the other hand, the opposition has yet to overwhelm the president – either through labor strikes or by crippling the government. 

No matter what happens, the Belarusian people will have to count on the good graces of Russia – which is exactly what Russia wants. That’s because neither the inauguration nor protests have solved Belarus’ problems. 

Lukashenko may stay, or he may go, but either outcome will be inclined to maintain good ties with Moscow.

Another Lukashenko term certainly means that he will continue relations with Russia. 

Relations between Minsk and Moscow are periodically overshadowed by trade and economic disputes, but Lukashenko has rarely strayed too far outside Russia’s orbit. 

Similarly, if Moscow had a choice, it would choose Lukashenko; the Kremlin already understands how to deal with him and how to leverage him. 

For now, Moscow can sit tight because Lukashenko has a lot going for him. In contested elections such as these generally, the power lies in who can retain control over the economy, especially over the state sectors of the economy. And in the case of Belarus, Lukashenko still holds that power. 

The government also controls the education and health care systems, the media and the state budget. Despite some recent strikes and subsequent layoffs, the economy is largely unaffected, and enterprises continue to operate. 

The military supports Lukashenko too. During his inauguration, representatives of every branch swore an oath of loyalty to the president.

The political elite haven’t yet abandoned Lukashenko, nor has the opposition credibly threatened his control. All in all, he is confident that he still has the support of Russia, which has already provided a loan worth $1.5 billion and has promised to intervene in the event of an external threat. (The Kremlin would prefer to avoid this, if possible.)

Of course, Lukashenko cannot be called an undisputed electoral winner. The opposition may not yet be formidable enough to take him down, but it continues to coordinate its efforts in contesting the results of the election. 

Every Sunday, the protests against him grow larger, and every “dissident” he locks up will only add fuel to the fire. Discontent among the working population is growing as employees organize more strikes, and various opposition blocs say they are ready to unite.

Yet, Moscow can still rest easy. The opposition parties advocating new elections have already acknowledged that they will maintain dialogue and ties with Russia if they gain power. Moscow has been careful to (officially) distance itself from the events in Belarus so that it doesn’t alienate itself from any side. 

The government was quick to note, for example, that Russian representatives were not invited to the inauguration (nor even knew about it).

The Kremlin understands there is no need to attract additional attention to itself by appearing to act in bad faith when whoever wins will want to stay close to Moscow anyway. Belarus is too economically dependent not to. 

Nearly half of all Belarusian trade is with Russia, and Russia accounts for about 40 percent of all investment in Belarus. Many of the protesters may disapprove of Union State projects, which look to integrate Russia and Belarus, but they know Moscow has the power to dictate the pace of the negotiations. They are generally silent on the Russia-led Eurasian Economic Union and the Collective Security Treaty Organization.


And aside from Russia, they have minimal external backing besides moral support. The United States, European Union and Canada refused to recognize Lukashenko but have chosen not to interfere. 

The EU is divided on the issue despite attempts by Poland and Lithuania to bring attention to it – in no small part by supporting the political opposition and trying to persuade other member states to apply sanctions. (There was only so much they could ever do. 

With the economic fallout of the coronavirus pandemic, no one has all that much incentive to try, and besides, Belarus is too important to Russia as a buffer state to let acts of perceived aggression go unanswered.) 

The EU may not want Lukashenko in power, but between an economic crisis, a second wave of the pandemic and revitalized immigration issues, Brussels has much more pressing matters to deal with. 

Even if it did levy sanctions, Belarus has been under them so many times that it knows how to withstand them. For Brussels, sanctions are an easy, low-cost fix to let Russia and Belarus know the EU disapproves of the current government but not enough to provoke a major conflict.

The first episode in the drama that is Belarus ends inconclusively. Poland and Lithuania could not achieve what they wanted, the EU wasn't in a hurry to impose sanctions, and the U.S. ignored it to the extent it could, worried as it is about its own elections. 

The protesters will continue to protest, and the opposition will continue to oppose. 

But among all this confusion, the only one who is definitely confident in its future is Russia.


Why is America’s economy beating forecasts?

A retreat of the virus, a big stimulus and a flexible labour market is causing faster growth

“When americans vote in November, unemployment will be below 6%,” declared Lars Christensen, a maverick economist, in May. 

Given that lockdowns had sent the unemployment rate soaring to 14.7% only the month before, it was a bold prediction. 

In June at least 14 of the Federal Reserve’s 17 interest-rate-setters forecast that quarterly unemployment at the end of the year would still be above 9%. 

Most other prognosticators were equally gloomy. They expected American gdp to collapse in 2020 and recover relatively slowly. Mr Christensen insisted that natural disasters, unlike financial crashes and recessions brought on by economic policy mistakes, are typically followed by rapid recoveries.

He may be proven right. Over the summer the unemployment rate fell fast, to 8.4% in August. And economists have scrambled to upgrade their growth forecasts (see chart). On September 16th the oecd, a rich-country think-tank, predicted that the American economy would shrink by 3.8% this year, rather than the 7.3% expected in June. 

The outlook was upgraded across the rich world, but nowhere by as much. America still faces a recession about half as deep again as the one it endured after the financial crisis. 

But expectations are not as apocalyptic as they were—and look better than they do in most of Europe.

The upgrades in America can be attributed to three factors. First, the spread of the coronavirus in the southern “sunbelt states”, which rode a wave of the epidemic in the summer, has slowed. Second, America’s economic stimulus, the world’s largest both in absolute terms and as a proportion of gdp, has been potent. 

Thanks to one-time stimulus cheques worth up to $1,200 per person and an extra $600 a week in unemployment-insurance (UI) payments, households’ disposable income has risen since the pandemic began. 

Americans did not spend the money all at once, meaning that it continues to support consumption today, even though most of the emergency support has expired. In early September ui recipients were still spending more than they did before the pandemic hit.

The final reason behind the forecast revisions is probably America’s flexible labour market. 

The fall in unemployment in recent months seems to reflect more new jobs, rather than discouraged workers exiting the workforce. 

In Europe governments have tended to assume much of the payroll cost for furloughed workers. Such schemes are handy in a tight spot. 

But if prolonged, they could keep workers in jobs that are never coming back. America, by contrast, has mainly protected people’s incomes with unemployment benefits (although it has absorbed the payroll costs of many small businesses via loans that may eventually be forgiven). 

As a result the reallocation of labour from dying industries to up-and-coming ones is happening at speed. For example, the number of travel agents has fallen by 10% since April, even as overall employment has risen. Employment in general-merchandise shops is 6% higher than before the pandemic.

Much could still go wrong. The virus could surge again, as it has in Europe. 

Many forecasters continue to assume, optimistically, that Congress will pass another stimulus package this year. Americans cannot run down their savings for ever. 

And social-distancing requirements remain in place in much of the country. As a result some labour-market indicators still look dire. 

In August, even as the overall unemployment rate fell, roughly 3.4m jobs were permanently culled, more than in October 2008, soon after Lehman Brothers collapsed. 

The rapid rebound this time could yet hit a hard ceiling. 

But Mr Christensen’s optimism no longer looks so exceptional.