The Upside of Unintended Consequences

There is no question that there has been a rise in populism around the world during the last two years and it is continuing. The voters in selected democracies in the West have become dissatisfied with their governments and the political process, and they have become attracted to candidates who have promised them change and a better life. The election of Donald Trump based on his campaign pledge to “Make America Great Again” was a clear example of this. The decision by voters in the United Kingdom to leave the European Union was another. Sometimes populists have trouble delivering on their promises and at other times, even when they do deliver, the results are different from what the voters expected.

I think it is fair to say that Donald Trump has had difficulty implementing his pro-growth agenda. His attempt to revise the Affordable Care Act failed to get enough votes in Congress to pass. The current Tax Reform plan is running into opposition in his own party and among Democrats. Nonetheless, he has changed the mood toward business in Washington in a positive way. Under Hillary Clinton, the atmosphere would have been anti-business, with higher taxes and more regulation. Under Trump the prospect is for lower taxes and less regulation. Donald Trump is a lucky guy, and the economy during his first year in office has been a dream cocktail of favorable results. Real growth has increased from 2% over the past few years to 3% in the second and third quarters. (The third quarter was a real surprise. Everyone expected growth at 2% or below because of hurricanes Irma and Harvey.) Inflation is tame at 2%, very low for the late stage of an expansion (unless this isn’t a late stage). The 10-year U.S. Treasury is yielding a very unthreatening 2.4%, the unemployment rate is just over 4% and looks like it is headed into the 3% range, household net worth is at an all-time high, consumer confidence is at a 15-year high and the Standard & Poor’s 500 is at an all-time high. That’s a pretty good set of statistics for less than a year in office. Perhaps giving President Trump credit for all of it isn’t right, but it did occur on his watch.

Over in Europe the results are similarly positive. According to Joseph Sternberg, writing in The Wall Street Journal, Europeans told pollsters “they would have elected Hillary Clinton, given the chance.” But in their own countries they kept voting for unorthodox outsiders who never managed to win power. According to Sternberg, “Europe’s politicians are producing the kinds of changes American voters wanted Trump to deliver.” In France, for example, Emmanuel Macron is overhauling a deeply unpopular entitlement program. In Germany, a plan is underway to cut one of the highest tax rates in the developed world. In the Netherlands, the new government is cutting its competitive tax rates further and plans to take over the pension system. Holland, though, unlike the U.S., intends to take in more immigrants.