by DEAN BAKER
President Biden handed off the best economy to an incoming president since at least the 2001 handoff from Clinton to Bush II. In his last quarter in office, GDP grew at a 2.3 percent annual rate (final demand, which excludes inventory fluctuations, grew at a 3.2 percent rate). That brought the average growth rate for Biden’s presidency to 3.2 percent, the highest since Clinton’s second term.
The unemployment rate fell to 4.0 percent in January, keeping it in the narrow band between 4.0 percent and 4.3 percent it has been in since last May. For Biden’s whole term the unemployment rate averaged 4.1 percent, the lowest since Johnson’s last term, more than half a century ago.
Inflation is still slightly above the Fed’s 2.0 percent target, but it shows no clear trend. It’s worth noting in this respect that below 2.0 percent inflation rates were largely a post-Great Recession story. Prior to the Great Recession, inflation generally ran somewhat about 2.0 percent. Inflation, as measured by the CPI, was 3.4 percent in 2000, the last year of the Clinton administration.
In addition, productivity growth has been unexpectedly fast, running at close to a 2.0 percent rate in the last year. And these productivity gains are being passed on in rising real wages, with workers across the wage ladder getting their share of productivity growth.
This translates into an extraordinarily good economic picture, but we know that Donald Trump has big plans for the economy. Given his bold pronouncements coming daily, or even hourly, he has many possible routes for ending the boom we have been seeing.
Here are my eight favorite economy wreckers, in no particular order:
- Stock market crash
- Mass deportation
- Tariffs run wild
- Pandemic wipe out
- Global warming disasters
- Splurge of spending cuts
- Debt limit crisis
- Messing with economic data
It is not entirely accurate for me to say there is no order. I do think a stock market crash is by far the likeliest way that the economy gets derailed. I should also say that a crash would not necessarily be Trump’s fault. If we have a bubble, as I strongly suspect, then it is likely something will burst it, even if we had competent people setting economic policy.
However, after the prospect of a stock crash, my views on the likelihood of the other dangers changes by the hour, or even the minute, as some new craziness spews out of Donald Trump or Elon Musk’s mouth or social media feed. Rather than making an arbitrary, as of this minute, ordering, I’m just going to say that the other seven are equally likely. I’ll quickly go through each in turn.
Stock Market Crash
The story here is straightforward. The price-to-earnings ratios in the stock market are near their 1990s bubble peak, even as most projections are that real profits will grow slowly over the next decade. This implies that either the profit projections are grossly understated, that price-to-earnings ratio will go even higher, people are willing to invest in stocks for returns only slightly higher than what they can get from bonds, or the market is likely to crash.
CEPR for more