Blockbuster GDP growth delivers for Trump – and proves NY Times, Nobel economist Paul Krugman wrong again

The economy has delivered for President Trump!

Registering 4.1 percent growth in the second quarter, Friday’s gross domestic product (GDP) report validates Republicans’ confidence that Americans are much better at solving their own problems than the bureaucrats in Washington.

Taxes matter – you can’t run those up as President Obama did without leaving households strapped and businesses with little incentive to invest. Getting personal and corporate tax rates closer to where they should be – not to where socialist planners like Bernie Sanders would like – is powering strong growth.

American mojo is back.

Consumer spending advanced at a 4 percent annual rate in the second quarter, and investment spending showed considerable signs of picking up steam. In particular, investments in structures, equipment and intellectual property notched a 5.4 percent advance – and much better advances are yet to come!

A lower cost of capital – facilitated by lower corporate tax rates and deregulation – takes more than six months to work through the system. After the initial jolt to consumer spending passes, we should expect investment spending to power third and fourth quarter growth well above the 3 percent line – delivering on Treasury Secretary Steve Mnunchin’s goal of 3 percent for the entire year.

That’s decidedly better than the growth registered by the Obama presidency – as is Trump’s optimism over the perpetual pessimism of the Obama administration.

Despite rising interest rates that are pushing up the dollar against foreign currencies, American manufacturing is staging a dramatic comeback and reaching the heartland – Trump country.

All this should help build the GOP dike against the Democrats’ blue wave in November, but caution is in order.

Trade tensions are dampening foreign investment in U.S. real estate. Though purchases of existing property don’t count in GDP, reduced foreign interest is depressing demand overall in the housing sector and is an important reason new home sales and construction are slowing. 

Resolving trade tensions with Europe will prove important and should encourage a rush of new investment from our old allies into America. This should offset diminished interest by Chinese buyers in New York City apartments. 

Americans vote with their pocketbooks. Higher tax bills – thanks to the cap on state and local tax deductions – could hurt Republicans defending House seats in high-tax states like New York, New Jersey and California and could overwhelm the optimism created by 3 percent growth.

And on a national scale, let’s remember that 10 days before the Nov. 6 midterm election the Commerce Department will publish third-quarter GDP estimates. Those numbers are bound to be lower than the second quarter. 

As has been the pattern since the financial crisis, the economy had a weak winter quarter – 2.2 percent GDP growth – and the second quarter jolt represents a rebound as much as it does more enlightened GOP policies kicking in.

The proof of the effectiveness of the Republican approach to shepherding the $20 trillion American economy to speedier recovery and resilience will be in the third- and fourth-quarter numbers. Those need to exceed an average of 3 percent to validate the Republican approach.

Some forecasters see another recession looming. They argue the economy is only getting a temporary jolt from tax cuts and after that, they pontificate, aggregate demand will tail off.

Well, nonpartisan econometric studies predating the Trump candidacy indicate the contrary.  Those show that the 15 percent cut in taxes on business profits enabled by corporate reforms should increase investment between 7.5 percent and 15 percent every year going forward. And in the current environment of deregulation, the higher figure should more closely apply.

Look for investment spending to power growth at about 3 percent a year or better for the remainder of 2018 and 2019.

Remember hard-left New York Times columnist Paul Krugman predicting the apocalypse in the wake of Donald Trump’s election?

Those on the left have a data problem now and they will be emphasizing widening income gaps, a guaranteed annual income and other kinds economic giveaways during the election campaign.

The hard reality is that Trump’s policies are delivering for working Americans – with jobs growth luring those on the dole back into the labor force.  And after all, a good job is the best social program.

There is a resiliency about Americans when the government gets out of the way. You can bank on that more than economists’ models. 

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.