While the U.S. economy has more or less recovered from the Great Recession, the recovery is only partial. Real incomes have not grown much, and the percentage of working-age people in the labor force is the lowest it has been for about 40 years. It is facts such as these which caused the unhappiness leading to Donald Trump’s election. Trump’s challenge is to reverse these trends and restart healthy economic growth.
Much of his agenda will work in this direction. Much of the basis for slow growth has been excessive and inefficient economic regulation, and reducing this regulation will lead to greatly accelerated growth. I saw the rate at which reduction of inefficient regulation can improve an economy from my position on the Council of Economic Advisers in the Reagan administration.
Trump’s Cabinet choices demonstrate these priorities. Steven Mnuchin for Treasury wants to cut back Dodd-Frank to increase bank lending, and also wants to reduce and simplify the corporate tax code. Ryan Zinke, nominated for Secretary of the Interior, is in favor of relaxing environmental regulations. Tom Price of Georgia, nominated for Secretary of Health and Human Services, wants to replace Obamacare with a less regulatory alternative. Elaine Chao, nominated for Transportation, has a record of deregulating in her previous job in the Bush Administration as Secretary of Labor, and has long worked at the deregulatory Heritage Foundation. Ben Carson at Housing is generally opposed to regulation. Rick Perry at the Department of Energy is in favor of increased development of domestic oil and gas. Andrew Puzder at Labor has run a major restaurant chain, and understands that excess regulation can lead to reduced hiring. Betsy DeVos at Education is in favor of competition in schooling, which will have a long-term beneficial effect on the economy. Scott Pruitt, nominated for head of the Environmental Protection Agency, is participating in a lawsuit claiming that some of the EPA’s regulations are excessive. I know many of the people named as likely heads of independent agencies such as the Federal Trade Commission and the Federal Communications Commission, and they are in favor of markets and opposed to inefficient regulations.
One difficulty will be reconciling these movements with Mr. Trump’s threat to place tariffs or other impediments on imports, and particularly imports from China and Mexico. A tariff is a tax, and increasing tariffs is a form of tax increase, and will have the usual effect of reducing American incomes and growth.
To the extent that recent decisions by auto manufacturers to cancel plans to build in Mexico and instead build in the U.S. are driven by Mr. Trump’s threats of tariffs, then prices of autos to Americans will be higher than otherwise. Reducing immigration of Mexican and other foreign workers will also retard an expansion. Some of Trump’s appointees are in fact in favor of such restrictions, including Peter Navarro, head of a new trade office; Wilbur Ross, nominated as Secretary of Commerce; and Robert Lighthizer, nominated as Special Trade Representative.
So many of Mr. Trump’s policies will lead to increased economic growth, but some of his most deeply advertised policies will retard recovery. Many of his appointees are in favor in globalization and international trade, but many are opposed. How these sets of forces will play out is an open question at this point.