Much has been written about the increase in job creation during the first two years of the Trump administration.  And many of these commentaries, particularly by conservatives, have focused on the role of tax cuts and deregulation.  And they are correct as will be explained below.  However, some suggest this would not have happened without Donald Trump at the economic policy helm.

Sorry, but when it comes to suggesting Trump has performed some kind of job creation miracle, they are dead wrong.  Consider the following.  Suppose the United States was a typical higher-end middle class household earning $122,000 per year (Pew Research).  This family could probably meet its basic needs and enjoy one or two personal amenities, but could not be described as living on “easy street.”  Now imagine they win the lottery and suddenly have an influx of unearned cash.  At the same time, they “deregulate” their lifestyle by not buying insurance to cover their home, car or medical expenses.  They do no maintenance such as repairing the deteriorating stairs leading to their front door.  As long as the stocks in which they invested their lottery winnings did not crash.  Or they had no catastrophic accidents or illness.  Or they were not liable for someone’s injury on their property, they would be cradled in the lap of luxury.  But you would hardly call them fiscal geniuses.

Yes, the United States is experiencing job growth.  But just like the above example, that phenomenon is fueled on “unearned dollars,” i.e. the annual deficit and reduced business costs as a result of deregulation which puts the health and safety of workers and the general population at risk.  And it makes sense UNTIL someone’s luck runs out.  Just ask Boeing.

What would really qualify as genius would be to achieve exemplary job growth while, at the same time, staying within one’s budget and without putting the health and safety of constituents at risk.  Impossible?  No and there is objective evidence to the contrary.  Contrast the following years during the Clinton and Trump presidencies.

1998
Federal SURPLUS/$69 billion
Jobs Created/3.04 million

1999
Federal SURPLUS/$129 billion
Jobs Created/3.18 million

2000
Federal SURPLUS/$236 billion
Jobs Created/1.98 million

2017
Federal DEFICIT/$665 billion
Jobs Created/2.2 million

2018
Federal DEFICIT/$779 billion
Jobs Created/2.3 million

That’s right.  The last president to both balance the federal budget and promote environmental protection can also claim the greatest employment expansion in the nation’s history with a total increase of 23.62 million new jobs over eight years.

Unfortunately, there is no objective measure of the difference in health and safety regulations during these time periods.  However there are subjective indicators that separate Bill Clinton and Donald Trump.  For example, the overarching philosophy during the Clinton years was environmental protection and economic growth were not incompatible.  In contrast, Trump supported increases in fossil fuel use, withdrew from the Paris Accords and  overturned many environmental regulations.  Likewise, the current administration has rolled back worker safety rules affecting mining, offshore drilling and meat processing.  And now it proposes more self-regulation by businesses and their trade associations.  Why not?  It worked for the banking industry in 2008.

The bottom line?  If you want to create jobs, any idiot can do it if he or she does not care about the costs or risks to health and safety.  Even I could do it.

For what it’s worth.
Dr. ESP

One of the recurring themes in the month-long punditry over the partial government shutdown is how Donald Trump’s obsession with building a wall on the Southern border is unlikely to expand his electoral base.  This is especially disconcerting to establishment Republicans as it flies in the face of what became known as the 2013 GOP Autopsy Report which acknowledged the need, after presidential losses in 2008 and 2012, to reach out beyond the party’s dwindling base of older white males.

Former RNC chair Michael Steele, on several occasions, has suggested Trump did just the opposite, alienating minorities, women and young voters.  In an interview last January with Melissa Quinn of the Washington Examiner, Steele went so far as to call Trump a racist and misogynist. Citing specific comments and actions, Steele concluded, “I think at this point the evidence in incontrovertible.  It’s right there.”

For two years, pundits speculated whether they might again be misreading Trump’s appeal to American voters and whether polls did not reflect support for the Trump agenda.  Speculate no more.  The 2018 mid-terms provided empirical evidence Trump has not expanded his base of support.  In fact, a 2.5 percent loss in the 2016 popular vote grew into a 7.9 percent margin in the aggregate vote for Congress in 2018.  Why would any rational individual think this is a path to victory in 2020?  Believe it or not, there is a justification when you look at the situation from a business perspective versus a political one?  Not that I would ever imply Trump is a successful businessman.  I’ll get to that later.

In the documentary STARTUP.COM, aspiring entrepreneurs Kaleil Isaza Tuzman and Tom Herman schedule a meeting with Robert Higgins at Boston-based Highland Capital, seeking an investment to expand their fledgling business providing state and local governments with a digital platform to offer on-line services (e.g. license renewals, parking tickets).  Assessing the company’s chances of success, Higgins shares a rule of thumb he says applies to almost every industry.  There are two to four major players who achieve success with a plurality (not a majority) of the market.  Then a few mom and pop niche providers.  Followed by a lot of failures.

Think about it.  In domestic air transportation we have United, American, Delta and Southwest.  The mobile phone industry is dominated by AT&T, Verizon, T-Mobile and Sprint.  And consider an industry where Trump tried to make his mark: gaming.   The domestic giants are Las Vegas Sands, MGM Resorts, Wynn Resorts and Caesar’s Entertainment, all very successful yet none has more than 12.8 percent of the market.

When you approach the world from this perspective, who would not be ecstatic about a 35-40 percent market share? Just think if Trump Casinos had 35 percent of the gaming industry.  It would have eclipsed the combined total for the next three competitors.  Keep in mind, Trump, Roger Ailes and Steve Bannon contemplated building a media empire assuming a GOP defeat in 2018.  Do not for a moment think that plan is off the table (minus Ailes, of course).

Trump believes diluting the message which accounts for his current 35-40 percent support has little likelihood of expanding his adherents and and is more prone to alienate some of his current followers.  And he is probably right.  In the world of commerce, think about disasters such as Coke II or the Kodak disc camera, efforts to gain market share which backfired dramatically.   Or when Cadillac entered the compact market in 1982 with a rebranded version of the Chevy Cavalier called the Cimarron. In the political sphere, consider how Ann Coulter and Rush Limbaugh are quick to jump ship at the least hint of protecting the “dreamers,” even temporarily.

So give Trump credit where credit is due.  He seems to understand commercial markets.  Unfortunately, that lesson pales in comparison to the one that actually determines success or failure.  It is not about the concept or the market.  That is only the opportunity.  Success depends on implementation and execution.  Failing to learn that lesson explains why Trump’s model of entrepreneurship will never work for long in the private or public sector.

For what it’s worth.
Dr. ESP

I am now half-way through Bob Woodward’s Fear and believe it is the most over-hyped book since Paul Ryan began promoting  Atlas Shrugged as the inspirational equivalent of the Bible.  Nothing in this latest bestseller makes Donald Trump scarier than I already imagined.  What actually terrifies me is the possibility South Carolina Senator Lindsay Graham, someone with less self-control when it comes to the use of military power than Kim Jung Un, has become Trump’s newest BFF and could be our next Attorney General.

But that’s not what I came here to talk about.  Chapter 19 covers Trump’s decision to withdraw from NAFTA based on his belief every trade agreement ever negotiated by one of his predecessors put the United States at an inherent disadvantage.  Despite objections by every senior domestic and foreign policy advisor except Peter “there is a special place in Hell for Justin Trudeau” Navarro, the Oval Office became the setting for the revival of the 1950s sitcom Trump Knows Best.  Consider the following exchange between Trump and Agriculture Secretary Sonny Perdue from Fear.

     “NAFTA has been a huge boon for American ag interests,” Perdue told Trump. “We export $39 billion a year to Mexico and Canada.  We wouldn’t have markets for these products otherwise.  The people who stand to lose if we withdraw from NAFTA are your base, the Trump supporters.”

     Perdue showed Trump a map of the United States that indicated the states and counties where agriculture and manufacturing losses would be hit hardest.  Many were places that had voted for Trump.

    “It’s not just your base,” Perdue said.  “It’s your base in states that are important presidential swing states.  So you just can’t do this.”

     “Yeah,” Trump said, “but they’re screwing us, and we’ve got to do something.”

Based on his subsequent actions, it’s hard to tell exactly who Trump thought was doing the screwing.  Our trading partners, his base or the American people in general?  Since this April 25, 2017 conversation, Trump has nullified several trade agreements, subjected farmers to retaliation shutting them out of multiple international markets and dedicated $14 billion of your and my tax dollars to compensate these same farmers for a problem for which he alone is responsible.

Now I will be the first to admit no president should ever take full credit or full blame for fluctuations in the U.S. economy.  An economist once observed, “The president has a better chance of controlling the tides.”  However, policy decisions can accelerate or temper changes in economic growth.  And the timing of such decisions may be more important than the policy details.  In a May 2016 post titled “Oh, The Hypocrisy!”, I pointed out the stupidity of blocking an infrastructure program when the cost of borrowing money was near zero percent.  Now, in terms of global trade policy, it again seems as though Trump and his GOP enablers slept through Economics 101 during the discussion of supply and demand.  Let me explain.

The theory of supply and demand can also apply to money and income.  In other words, when people have money in their pockets (supply) they can buy goods and services (demand).  Which explains why Trump is somewhat correct when he says the balance of trade has been unacceptably out of kilter the last decade.  But there is a very logical reason for that.  The financial meltdown in the fall of 2008 was a global event.  According to the World Bank, the global GDP growth rate fell from 3.83 percent in 2007 to -1.73 percent in 2010.  And for several subsequent years, the global rate lagged significantly behind the U.S. recovery.

OK, Donald.  I will say this slow enough for even you to understand.  As the U.S. economy improved, Americans had more money and there was a pent up demand for goods and services.  This demand was fulfilled by both U.S. and global suppliers.  Residents of our trading partners did NOT have cash and were not buying products from ANYBODY domestically or internationally.  Thus, an increase in the trade deficit.

But things have changed.  The World Bank now predicts global GDP will increase by 4.5 percent in 2018.  So, at the very moment the rest of the world will have the financial wherewithal to buy more U.S. goods, Trump and Navarro have abandoned free trade agreements in favor of tariffs which will redirect those dollars to non-U.S. suppliers.

Blaming the fallout from this one on Barack Obama may be the biggest challenge to date for the White House spin machine and Fox News.   And that is saying something.  But I have no doubt they will try.

For what it’s worth.
Dr. ESP