DONALD TRUMP SAYS he’s a winner. To be a winning president, Trump needs to fix what investor Scott Grannis calls the Obama Gap. The gap is American growth that fell into the ditch. From 1966 to 2008 U.S. GDP averaged 3.1% a year in real growth. Since 2009 it’s been barely 2%.
Grannis notes how the U.S. has bounced back after every recession except the last one: “Never before has the U.S. economy posted such a weak recovery and such a long period of subpar growth.”
What went wrong? Grannis ticks off the reasons: weak business investment, low job growth, microscopic productivity gains and, despite record-setting profits, a strange, depressive risk aversion.
What’s been at fault? Writes Grannis: “Beginning in 2009, the economy has been burdened by (1) an unprecedented remaking of the entire health care industry (ObamaCare), which in turn has impacted the lives and health care costs of nearly everyone; (2) sweeping new regulatory burdens on the financial industry (e.g., Dodd-Frank); (3) a massive increase in government spending and transfer payments (the American Recovery & Reinvestment Act); (4) higher marginal tax rates on income, dividends and capital gains; and (5) a huge increase in the federal debt burden. You don’t have to have a political bias to believe that these changes could go a long way to explaining why the economy has been so weak during the Obama years.”
So weak, in fact, that about $3 trillion in economic activity that ought to have occurred during Obama’s eight years didn’t happen at all–as if it were stillborn. Three trillion dollars would have meant a lot of new jobs, bigger raises and higher hopes. But they never happened. Grannis says it would take eight years of 5% growth to get the U.S. back to its 3.1% trend line.
What Trump and the Republicans can–and must!–do is fix items 1-5. No, we won’t get 5% growth, but we can get a lot more than we have now.
PEDAL TO METAL–BUT DON’T MEDDLE
Trump and the Republicans can set the table for higher growth. But they can’t direct the growth–and let’s hope they don’t try. Trump won’t have any impact at all on what KPMG calls the Great Rewrite.