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"Best Economy" Ever? A Historian Tackles Trump's Claim · Trumponomics

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  Speaker 1: Yes, the job numbers are strong and GDP did post
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  Speaker 1: the fastest growth in almost four years. But Donald Trump
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  Speaker 1: has repeatedly claimed that the US is enjoying the best
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  Speaker 1: economy in the nation's history. Is it really? This week
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  Speaker 1: on Benchmark, we talked with a pre eminent economic historian
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  Speaker 1: who begs to differ. Welcome to Benchmark. I'm Scott Lanman,
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  Speaker 1: an economics editor with Bloomberg News in Washington, and I'm
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  Speaker 1: Daniel Moss, columnist at Bloomberg Opinion in New York. How
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  Speaker 1: guest today is Robert Gordon. He's a professor at Northwestern
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  Speaker 1: University and author of the acclaimed twenty sixteen book The
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  Speaker 1: Rise and Fall of American Growth. Last time we had
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  Speaker 1: Professor Gordon on the podcast, which was a couple of
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  Speaker 1: months before the twenty sixteen election, we talked about that book.
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  Speaker 1: It traces the US economy over the past two centuries.
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  Speaker 1: No one can accuse him of thinking small. Gordon concluded,
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  Speaker 1: we just don't have the kinds of innovations anymore, like
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  Speaker 1: electricity that can supercharge the economy. Yet, at the same time,
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  Speaker 1: Gordon made a prescient prediction on our show. I went
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  Speaker 1: back to it and he said I quote, we are
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  Speaker 1: entering a period of the next two or three years
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  Speaker 1: that I think will go down in history as some
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  Speaker 1: of the best years of the American economy unquote. But
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  Speaker 1: the unemployment rate falling and wages going up. Now that
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  Speaker 1: the economy has indeed gotten better, let's find out what
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  Speaker 1: he thinks. Professor Gordon, Welcome back to Benchmark. Glad to
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  Speaker 1: be here. So how would you describe the U. S
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  Speaker 1: economy today? Today? The economy is in a very good position,
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  Speaker 1: but it's not the best American economy we've ever seen.
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  Speaker 1: So the headline numbers of unemployment, the three is the
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  Speaker 1: best we've had since the year two thousand, eighteen years ago,
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  Speaker 1: and it's almost the best we've had since the nine sixties.
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  Speaker 1: We have moderate and low inflation. And I'll correct your
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  Speaker 1: comment about GDP growth. Those of us in the know
• 2:20
  Speaker 1: look at the average of the two ways of measuring
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  Speaker 1: the total product of our economy. One is the famous GDP,
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  Speaker 1: but the other is known as g d I or
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  Speaker 1: gross domestic income. That's adding up everyone's income adjusted for inflation,
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  Speaker 1: instead of adding up what is produced. And if you
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  Speaker 1: look at the average of g d P and g
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  Speaker 1: d I over the last two quarters, we've had two
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  Speaker 1: consecutive quarters of three percent growth, not four percent growth,
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  Speaker 1: and so that is a qualification. And we've had those
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  Speaker 1: quarters of three growth before over the last six or
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  Speaker 1: seven years of the expansion, Professor Golden. That's why you're
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  Speaker 1: on the show and we're just jumped lists when we
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  Speaker 1: talk about trade wars, introduction of tariffs, and also the
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  Speaker 1: big fiscal stimulus that was unleashed last year. Did those
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  Speaker 1: things typically happen when an economy is weak, and if so,
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  Speaker 1: what are the consequences of them happening when the economy
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  Speaker 1: is strong? Well. The effect of trade wars is too
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  Speaker 1: h raise the price of goods for consumers, raise the
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  Speaker 1: price of intermediate raw materials for American companies, materials such
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  Speaker 1: as steel and aluminum that have had terrots imposed on them,
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  Speaker 1: thus making American firms less competitive with their foreign arrivals
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  Speaker 1: and causing them to raise their prices as well. In
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  Speaker 1: the end, higher prices will sap consumer's income directly, and
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  Speaker 1: it will also raise the inflation rate, which will move
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  Speaker 1: ever closer the days when the Federal Reserve breaks out
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  Speaker 1: of its current moderate restrictive monetary policy and becomes truly restrictive.
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  Speaker 1: So those those are all consequences of the terror policy,
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  Speaker 1: which almost nobody approves of except for a few companies
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  Speaker 1: that are directly competing with those products that are facing terrors,
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  Speaker 1: such as American steel and aluminum makers. Is the U.
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  Speaker 1: S economy strong enough to withstand the impact from these
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  Speaker 1: trade actions or is it likely to cause significant weakness
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  Speaker 1: From where we are now because of the fiscal stimulus
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  Speaker 1: from the tax cuts the bipartisan budget deal, raising spending
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  Speaker 1: is actually more important in terms of the stimulus to
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  Speaker 1: economic growth. And also we've got enormous extra wealth in
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  Speaker 1: the economy coming from the increase in the stock markets
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  Speaker 1: and selection day, and that's going to trickle into consumers spending.
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  Speaker 1: Even though most of it goes to the wealthy, there
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  Speaker 1: still is going to be benefits across the board in
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  Speaker 1: consumers spending. So the economy has a great deal of
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  Speaker 1: momentum now, and I expect that momentum will continue over
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  Speaker 1: the next at least board of six quarters without any
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  Speaker 1: noticeable slowdown coming from terraps. Professor, you may be familiar
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  Speaker 1: with a book just published by Kai Fu Lee called
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  Speaker 1: AI Superpowers, China, Silicon Valley and the New World Order.
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  Speaker 1: He challenges the idea that there are no great innovations
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  Speaker 1: at the moment driving things forward. Have you had a
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  Speaker 1: chance to look at his book. No, No, And I'm
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  Speaker 1: not saying there aren't. There are lots of innovations, but
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  Speaker 1: if you look at the way ordinary life is carried out,
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  Speaker 1: if you look at robots and your look for robots
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  Speaker 1: in your everyday life, you still are seeing restaurants, supermarkets,
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  Speaker 1: and doctor's offices, and most of the places you visit
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  Speaker 1: in the course of a week or a month are
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  Speaker 1: pretty much carrying out their operations as they did ten
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  Speaker 1: years ago. So it's not that we don't have a
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  Speaker 1: lot of innovations going on. But takes the driverless car.
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  Speaker 1: That's a lot of innovation, and a lot of companies
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  Speaker 1: are struggling to become Numero uno in that field. But
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  Speaker 1: we still aren't seeing any direct benefits of it. We
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  Speaker 1: aren't seeing massive replacement of long distance struct drivers, for instance,
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  Speaker 1: much less inner city truck drivers. So don't let me.
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  Speaker 1: Don't ever quote me as saying there's no innovation. What
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  Speaker 1: I'm interested in is the impact of innovation on productivity growth.
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  Speaker 1: Can we go back to our original question and talk
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  Speaker 1: about which era of US growth do you think was
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  Speaker 1: better than this current era, and why this current era
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  Speaker 1: may not be so great as it is. Well, the
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  Speaker 1: first place to look is at the labor market. The
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  Speaker 1: unemployment rate is only one indicator of the health of
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  Speaker 1: the labor market. To be unemployed, we've got to look
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  Speaker 1: for work. So people who are not looking for work,
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  Speaker 1: who have given up on the chances of finding work,
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  Speaker 1: are not count of this unemployed. There kinda is not
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  Speaker 1: being in the labor force, and the percentage of those
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  Speaker 1: prime age males and females aged to fifty four who
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  Speaker 1: have given up looking is substantially higher than it was
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  Speaker 1: back in the years of two thousands that we're going
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  Speaker 1: to cut used to compare this current economy with if
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  Speaker 1: we look at some other indicators of the labor market,
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  Speaker 1: there are some weaknesses there as well. More of today's
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  Speaker 1: unemployment is long term that is defined as people being
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  Speaker 1: out of work twenty six weeks or more. And another
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  Speaker 1: weakness in the labor market compared to the late nine
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  Speaker 1: nineties is that people who are working part time but
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  Speaker 1: would prefer full time jobs and just can't find them
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  Speaker 1: are a greater percentage of the labor force then was
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  Speaker 1: true back then. So those are three measures of the
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  Speaker 1: labor force, primate participation, the number of people looking for
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  Speaker 1: full time work who can only find part time work,
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  Speaker 1: and the percentage of the total unemployed who have been
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  Speaker 1: unemployed more than twenty six weeks. So that's one place
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  Speaker 1: I would go to suggest that we do not have
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  Speaker 1: the greatest economy of all time. And what about when
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  Speaker 1: we look at other eras that may have had better economies?
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  Speaker 1: What stands out to you? Well, if you go back
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  Speaker 1: to the sixties, we had a much higher percentage of
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  Speaker 1: um prime age males working than is true, was true
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  Speaker 1: even in the late much less today. And this brings
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  Speaker 1: me to the second major area of weakness, and I
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  Speaker 1: think a lot of people would go here first for
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  Speaker 1: the big contrast with up the current economy, and that
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  Speaker 1: is the very weak performance of productivity growth. If we
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  Speaker 1: look over the last eight years, productivity growth in the
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  Speaker 1: total US economy has only been zero point six percent
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  Speaker 1: per year. Now, that's only half of the one point
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  Speaker 1: two percent that I predicted in my rather pessimistic book.
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  Speaker 1: And if you look at this the last four quarters,
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  Speaker 1: which is part of the Trump achievement, we have productivity
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  Speaker 1: growth in the last four quarters. That's also only about
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  Speaker 1: half a percent per year. That contrasts with the late
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  Speaker 1: nineteen nineties when productivity was roaring ahead at close to
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  Speaker 1: three percent, as it was also in the mid nineteen sixties,
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  Speaker 1: and that makes a huge difference because it helps to
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  Speaker 1: account for the fact that is another weakness of the economy,
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  Speaker 1: and that is that not only are wages growing slowly,
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  Speaker 1: barely above the rate of inflation, but real family median incomes,
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  Speaker 1: the income of the person in the middle, it's hardly
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  Speaker 1: growing at all and has only recently exceeded where we
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  Speaker 1: were eleven years ago in two thousand and seven. So
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  Speaker 1: that whole nexus of productivity growth, real wage growth, and
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  Speaker 1: median family income growth is all a very distinct weakness,
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  Speaker 1: just no comparison between either the sixties or the late
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  Speaker 1: nineteen nineties and where we stand today. So, Professor, when
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  Speaker 1: we talk about the declining participation right and the demographic
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  Speaker 1: challenges behind it, specifically retiring baby boomers, project forward for
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  Speaker 1: us a couple of decades, what does that mean in
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  Speaker 1: terms of the American labor force? Are we going to
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  Speaker 1: see much much more capital spending on automation robots things
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  Speaker 1: like that. Well, the first industrial robot was introduced in
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  Speaker 1: ninety one. We have a lot of robots in our
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  Speaker 1: economy that people seem to think that this is a
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  Speaker 1: new deal. But automated machinery operating alongside humans or replacing
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  Speaker 1: humans has been part of the store of the history
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  Speaker 1: of manufacturing for a long time. In Amazon warehouses, there
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  Speaker 1: are robots that bring the shelves to the human packers,
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  Speaker 1: and inevitably machinery will be developed in robot like human
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  Speaker 1: hands UH that pick out the products to be sent
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  Speaker 1: to the Amazon customers will gradually replace those workers. But
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  Speaker 1: this has been true since the beginning of the Industrial
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  Speaker 1: Revolution in the late eighteenth century. UM, and we've always
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  Speaker 1: found new things for people to do. UM, We're not
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  Speaker 1: going to have mass unemployment as a result of the
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  Speaker 1: gradual introduction of not just robots but also artificial intelligence. Professor.
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  Speaker 1: Looking more at the near term, you've just come back
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  Speaker 1: from a conference of economists where they released a pole
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  Speaker 1: showing that about half of their members expected a recession
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  Speaker 1: to begin in the United States in and even a
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  Speaker 1: few said it might even begin before that. Where do
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  Speaker 1: you stand on when the next recession will happen well.
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  Speaker 1: The momentum in the economy, the forward momentum in the
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  Speaker 1: economy growing strongly, is certainly in place for the next
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  Speaker 1: four to six quarters, and that takes us through the
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  Speaker 1: fall of At that point we begin to lose the
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  Speaker 1: underpinnings of fiscal stimulus because the bipartisan budget deal that
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  Speaker 1: raised spending by three billion dollars in the two years
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  Speaker 1: and nine is going to be eliminated, and certainly, if
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  Speaker 1: the Democrats regained control of the House, we're not going
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  Speaker 1: to see any further fiscal stimulus because the parties will
• 13:24
  Speaker 1: be at loggerheads between the White House, the Senate, and
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  Speaker 1: the House of Representatives. So we're gonna lose the fiscal stimulus. Also,
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  Speaker 1: stock market valuations are very high now, and even without
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  Speaker 1: predicting a major decline in the stock market, we're going
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  Speaker 1: to have far less growth in the stock market valuations
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  Speaker 1: over the next two years than we have had over
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  Speaker 1: the last eighteen months, and that's going to take away
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  Speaker 1: another underpinning of the supercharge growth that we're enjoying now.
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  Speaker 1: So without those underpinnings that have east growth this year,
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  Speaker 1: we would expect grows to go back to two well
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  Speaker 1: I think the real Achilles Heel of the economy is
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  Speaker 1: I think that the FED is much too sanguine and
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  Speaker 1: forecasting that inflation is going to remain at only two
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  Speaker 1: or two point one percent through the next three years.
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  Speaker 1: That's their official forecast, and many economies just find that unbelievable.
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  Speaker 1: Unemployment is going to continue to fall down to three
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  Speaker 1: and a half and even three It may go below
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  Speaker 1: where it was that the best years of the nineteen sixties,
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  Speaker 1: and we're going to have an increasing pressure of labor
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  Speaker 1: shortages on wages and thus on prices. We just heard
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  Speaker 1: today that Amazon is guaranteeing that everyone in its warehouses
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  Speaker 1: is going to be making fifteen dollars an hour or more,
• 14:44
  Speaker 1: which is double the federal minimum wage. We just heard
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  Speaker 1: that New York City Airports are going to guarantee all
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  Speaker 1: employees the wage of nineteen dollars an hour. These are
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  Speaker 1: wages that we haven't seen in this country yet, and
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  Speaker 1: they're bound to be pushing up on We've got prices
• 15:01
  Speaker 1: going up because of labor shortages, tariffs, higher minimum wages,
• 15:06
  Speaker 1: and that's bound to shake up the FED. I think
• 15:09
  Speaker 1: the financial market is going to react to the inflation
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  Speaker 1: even before the FED does, and we're going to see
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  Speaker 1: a turnaround with higher ten year bond rates and lower
• 15:19
  Speaker 1: stock prices going into and the fall of I don't
• 15:24
  Speaker 1: see a financial crisis coming. I see a gradual slowing down.
• 15:29
  Speaker 1: And it's very possible that any recession that occurs will
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  Speaker 1: be relatively mild, nothing like two thousand and seven to
• 15:37
  Speaker 1: two thousand and nine. Just a recession, not a great one. No,
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  Speaker 1: and I don't see the very common likening, oh, the
• 15:45
  Speaker 1: next recession and financial crisis. We've had a lot of
• 15:49
  Speaker 1: recessions without financial crisis. We had no financial crisis between
• 15:54
  Speaker 1: and two thousand and eight, So I don't see where
• 15:56
  Speaker 1: the next recession needs to lead to a financial crisis.
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  Speaker 1: We have a much better capitalized banking system than we
• 16:04
  Speaker 1: did then. We have no housing bubble, we do not
• 16:07
  Speaker 1: have a dot com investment bubble. Stock mark evaluations are
• 16:11
  Speaker 1: much less overheated than they were. Just one final note, Professor,
• 16:17
  Speaker 1: the revamped US Canada Mexico Trade Accord formerly called NAFTA
• 16:23
  Speaker 1: now to be called U S m C. I. When
• 16:26
  Speaker 1: we look at the broad sweep of the continents economic history,
• 16:31
  Speaker 1: how significant is this? Oh? I think the the changes
• 16:36
  Speaker 1: that are made in the new NAFTA compared to the
• 16:39
  Speaker 1: old NAFTA are minor enough that we can almost forget
• 16:42
  Speaker 1: about them. There is this important concession the Canadians made
• 16:47
  Speaker 1: on dairy farmers, but that's such a small part of
• 16:49
  Speaker 1: their economy and our economy. That's more important for Canadian
• 16:53
  Speaker 1: political outcomes than it is for any evolution of the
• 16:57
  Speaker 1: American economy. And you have at important proviso in the
• 17:02
  Speaker 1: deal between the United States and Mexico that about a
• 17:05
  Speaker 1: third of the value of automobiles sold in the United
• 17:08
  Speaker 1: States has to be manufactured by workers making sixteen dollars
• 17:13
  Speaker 1: an hour, which is unlikely to cause wages to grow
• 17:17
  Speaker 1: that much in Mexico because they're only around three dollars
• 17:20
  Speaker 1: an hour, but will cause American manufacturers to abide by
• 17:24
  Speaker 1: that agreement to shift the making of some kinds of
• 17:27
  Speaker 1: parts back into the United States, which will be a
• 17:30
  Speaker 1: good thing for our economy. So I see it as
• 17:33
  Speaker 1: all in all the positive. We escaped the big trade
• 17:37
  Speaker 1: war between the United States and Canada, and now we're
• 17:40
  Speaker 1: left with a big trade war between the U. S
• 17:42
  Speaker 1: and China. Do you think that instead of globalization, professor,
• 17:47
  Speaker 1: we're headed towards some sort of form of muscular regionalism.
• 17:52
  Speaker 1: I think that's way too while the generalization. After all,
• 17:57
  Speaker 1: we had the nations besides the United States that were
• 18:01
  Speaker 1: in the trans specific Partnership that have vowed to go
• 18:03
  Speaker 1: ahead with it. We have the European Union holding together
• 18:07
  Speaker 1: with the exception of Brexit, and we've got the the
• 18:13
  Speaker 1: push by China to invest in places ranging from Pakistan
• 18:18
  Speaker 1: to East Africa. All of those are elements of what
• 18:23
  Speaker 1: you would call continued globalization. It's just in another phase,
• 18:28
  Speaker 1: that's right. But the the trade war that the administration
• 18:32
  Speaker 1: has started, particularly with China, is going to have a
• 18:37
  Speaker 1: modest but noticeable effects on US inflation. And that's the
• 18:42
  Speaker 1: real Achilles heel of this recovery. What financial markets are
• 18:46
  Speaker 1: going to do when they see more inflation, and what
• 18:48
  Speaker 1: the FETE is going to do when it sees more inflation.
• 18:51
  Speaker 1: Professor Robert Gordon of Northwestern University, This has been informative, educational,
• 18:57
  Speaker 1: and enlightening. As always, Thank you so much for taking
• 18:59
  Speaker 1: the time to join us. Okay, it was my pleasure. Benchmark.
• 19:11
  Speaker 1: We will be back next week. Until then, you can
• 19:13
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