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March 1 2019

A Good Fourth-Quarter Growth Report: Tax Reform a Big Factor

by Charlotte Hays

Quote of the Day:

The American economy is a tremendous engine of prosperity when politicians get out of the way, and for proof look no further than Thursday’s report on fourth-quarter growth.

--editorial in this morning's Wall Street Journal

Economic growth for the U.S. economy for the fourth quarter was 2.6, which was higher than expected. The editors noted:

Growth in the fourth quarter came in higher than expected at 2.6% after a December financial-market scare, and the internals were better than the top line. Consumer spending declined a bit but was still strong. Growth from government spending was negligible—so much for claims of a deficit-led boom in “demand.”

The best news was business investment, which contributed 0.69-percentage points to GDP growth. This is even better than it looks because housing subtracted 0.14.

I want to point out something you no doubt already have noticed--that "unexpectedly" meme. In the Trump years, growth seems to be always "unexpectedly" better that those supposedly in the know anticipated, while in the Obama years growth was almost always "unexpectedly" disappointing to those who knew.

Why is the Trump economy's good performance always unexpected? Why was the Obama economy's lackluster performance inevitably a surprise for these same pundits?

Economic results are a form of confirmation or rejection of policies.

I suspect those who were inevitably caught off guard by the stagnation in the Obama economy were pulling for his policies.

If  you read the two financial websites I check almost daily, you'd think  we are in a recession.

I'm betting the majority of the writers for these websites are not pulling for Mr. Trump and his policies.

But business investment and GDP are improving.

The editors comment:   

So what changed in 2017? Well, there was that change of Administration that brought a major policy shift—specifically, an end to willy-nilly regulation and harassment of business. Deregulation reduced the political uncertainty that had caused businesses to delay or reduce investment.

Tax reform arrived in 2018, removing the roadblock of the highest corporate tax rate in the world and inviting companies to repatriate profits held abroad. Investment picked up almost exactly as chief White House economist Kevin Hassett predicted it would. He predicted growth for the year would rise by 3.1% in 2018 on a fourth-quarter to fourth-quarter basis, and growth came in exactly at 3.1%.

[Kevin Hassett, current Chairman of the Council of Economic Advisers]  made these predictions in the heat of the 2017 tax reform debate and was ridiculed by progressive economists. One quote that doesn’t age well came from Larry Summers, the former Barack Obama adviser, who wrote in the Washington Post that tax reform would make no difference unless “you believe in tooth fairies and ludicrous supply-side economics.”

When Mr. Hassett pushed back to defend the tax proposal, [Larry Summers, former Obama economic adviser] said, “I am proudly guilty of asserting that it is some combination of dishonest, incompetent and absurd.” There are other redolent quotes, but we’re compassionate conservatives.

Tax reform proponent Hassett expected good results, while Obamanomics guru Summers must be among those who find them "unexpected."



Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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