Investment bleg23rd November 2018
Here’s Paul Krugman:
The political payoff, of course, never arrived. And the economic results have been disappointing. True, we’ve had two quarters of fairly fast economic growth, but such growth spurts are fairly common — there was a substantially bigger spurt in 2014, and hardly anyone noticed. And this growth was driven largely by consumer spending and, surprise, government spending, which wasn’t what the tax cutters promised.
Meanwhile, there’s no sign of the vast investment boom the law’s backers promised. Corporations have used the tax cut’s proceeds largely to buy back their own stock rather than to add jobs and expand capacity.
He’s right about GDP growth in 2014, but I’m not seeing data to support his claims about investment. Am I misinterpreting the investment data?
[BTW, in early 2014 Krugman thought the elimination of extended unemployment benefits would hurt employment growth. I thought it would help. It helped a lot.]
The Fred data site reports that both total investment and business investment are rising at a pace of about 8% per year, which is roughly 6% in real terms. Isn’t that consistent with the corporate tax cut helping? And job growth has been stronger than many (including me) expected, given the low rate of unemployment. Of course it’s nothing like the miracle Trump promised when he suggested the real unemployment rate was 20% to 40% (and I expect growth to slow next year), but that’s a separate question from the issue of whether the corporate tax cut helped the economy. The data suggest it has, unless I’m missing something. This graph shows growth rates for business investment:
PS. Why is Trump trying to drive down oil prices? In the second half of this post, I showed that high oil prices now tend to boost industrial production—mostly due to fracking. Doesn’t Trump want more industrial production? Look at investment growth in late 2015 and 2016, when oil prices were low.
PPS. The criticism of the Trump tax cuts that people should be making relates to the budget deficit. But many on the left have lost credibility on that issue, and hence they tend to keep quiet.
PPPS. Happy Thanksgiving everyone!
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