President Donald Trump's Economic Scorecard

But we can probably say the Democrats have not swept the table, which has implications for the kind of radical changes we might expect to see in US policies over the next four years. But before getting into what could be an agenda for the future, what about the past? How has President Trump's four years changed the US economy

and its impact on the rest of the world. Well, this week I'm going to discuss that with two very wise economists in a moment, the author economist and Bloomberg columnist Tyler Cohen, professor of economics at George Mason University. But first, Randall Krosner, former Federal Reserve Governor and professor of economics at the University of Chicago Booth School of Business.

Now I should say he's speaking to us from the streets of London, just outside their London campus, if you can, if you're trying to work out what some of the noises are during the conversation. But Randy, thank you very much for joining us. How would you say President Trump had changed the US economy in the last four years? What's what difference has he made? I think he's made quite a difference. I think there's been a dramatic difference in the approach to the global trade, in particular to

trade with with China. Really emphasizing the concerns about intellectual property, about about potential for unfair trade practices and really brought that to the fore in a way that had not been there before in the US or elsewhere. And I think it's really changed the global discussion on that. You can agree or disagree, but I think, um, whether it is a Trump administration or a Biden administration going forward, UM, I think there's gonna be a lot of tension trade

with China. Second area that I think he made a major change is with respect to taxes UH significant reduction corporate taxes UH. US corporate tax rates had stayed pretty much where they were for a long time whereas most of the the others, like here in the UK or in continental Europe, and most of the major major competitors have been reducing corporate taxes over time. So that was

an important second important change. I think the third important change is related to at a climate and green energy, and clearly the president withdrawing from the Paris Accord and taking a very different view of green energy than President Obama had and Vice President Biden had, that was a

big change. So I think three major changes. And as an economist, what would you look at now and consider to be the best feature of the great the most positive contribution that the president had made to America's future growth and prosperity. I do think the tax reforms helped us to move a little bit closer to a more sensible system of taxation of corporate income, that, all of the things being equal, was was a positive. Is it as far as I would have liked to have gone. No.

Is it as full of reform? No? But it was a step in the right direction. So that's interesting because of course there's a lot of perception that the tax cuts predominantly benefited the rich and big corporations. But you would say that it's not gone far enough. So my focus as primarily on the on the corporate side to try to focus on increasing investment because we've had not

as much investment as as we would have liked. That's a global phenomena, it's not unique to the US and UH, and trying to improve incentives for firms to invest and invest in the United States is valuable. The previous tax system had these diverse incentives that led to so called inversions of companies trying to move their domicile out of the US to places like Ireland and elsewhere that had very low taxes. UH. That certainly had no benefit for

the US. A lot of corporations were holding hundreds of billions of dollars offshore because of the way the tax system worked, and this helped to reduce some of those those disincentives. As I said, did they go far enough to solve the issues and UH and give us, you know, a spiked productivity growth? No? Was it a step in the right direction. Yes, that's funny. We're gonna think a bit later on. We're going to discuss one of the potential reasons why we have that shortfall in investment. But

I'll leave people hanging for that answer. Um, And if you have to ask you what you most want to change from an economic standpoint, what what do you think was most damaging to America's future prosperity potentially? So, I think that the key would be to really have a very clear focus on a pro growth and productivity growth agenda and uh and I think there were a lot of distractions from something something like that and that was I think that would be the biggest benefit going forward,

regardless of whether it's Republicans or Democrats. I think there's certainly a number of things that people on both sides of the aisle could agree with. And if you have higher productivity, growth, higher investment, that then leads to the higher wages. And as someone who had has sat as a policymaker in the Federal Reserve, I have to ask you how you feel the FED has fared over the

last four years. I mean, we're familiar with the actions has had to take in response of the COVID crisis, but we've also seen it become much more subject of political attacks and more of a politicized institution despite its best efforts. Do you think that's something that needs to change or has put the FED in a in a risky position going forward. I think the FED is always

in the political cross hairs. I was there during the global financial crisis, and certainly there were a number of political actors who were suggesting quite strongly things that we should or shouldn't be doing. So I don't think it's it's new to the FED to to come under political scrutiny and political pressure. I think one of the interesting things is an unintended consequence of the reforms that so called Dodd Frank reforms that came after the after the

global financial crisis. UM, it required that for the FED to do the emergency programs that they had done when I was there without asking Treasuries permission, now requires sign off from the Secretary of Treasury. There was a concern that would slow the FED down and be able to respond to a crisis. Obviously, the FED responded very rapidly

and uh and very boldly. And what's interesting is that, UM, I think the Congress is now when the appropriate money for doing certain programs, they say to the Treasury, will here's some money, who work with the FED to turn that into a particular program, like a main street lending

program or other programs like that. So I think what's interesting is that an unintended consequence of UH of the DoD frank has not been to just slow down the response, but to have more direct um direction from the members of Congress as to what the FED should be doing in a crisis. And of course, I mean the FED purists would say that's a disaster because you don't want it. You're sort of chipping away at the Fed's independent But the other view would be that it makes them more

accountable to ultimately the elected leadership of the country. Where do you stand on Yeah, so it's difficult to get the balance right. It's got to be accountability, and certainly in a crisis it's important for all hands to be on deck, whether it's the Treasury, whether it's Congress, whether it's the FED, and trying to be coordinated. So I think that's UH. You know, it's important to have that sort of united united front and have that kind of coordination.

The question is, in the longer run, does that interfere with the ability of the FED to step back to take back some of the UH the programs that they had had put forward when the economy begins to recover if they If that becomes difficult, that's really problematic, because then that would likely lead to an inflation outcome that

I think no one ultimately wants. UM, But sometimes it's difficult for the political actors to to see those intermediate to longer run consequences when they want to maintain credit

flowing to a particular sector. I mean, one thing that the FED did end up doing UM, which also supported the stock market, which is obviously a big focus for President Trump, was making these quite sort of big promises about buying junk bonds and supporting corporate lending at that level, which I think sort of raised a few eyebrows that to have the FED in effectively propping up that bit of the market as well as somehow implicated in supporting

the stock market generally. Do you think that the Fed's called itself into a difficult position there. I think there are two pieces of it. One is, if they see the markets not functioning properly, they're going to intervene, and they should intervene to make sure there isn't a total

meltdown that happened a decade ago. That also happened in March of this year when the FED intervened, provided liquidity, provided um uh U s dollar credit globally to other central banks, and that took away what I call a market dysfunction discount UM. And so that is something that I think is appropriate for or for central banks to

be doing the challenges. They have now gotten into areas that we had not gotten to when I was there a decade ago, um taking effectively more risk because they are getting into lower rated securities, doing some direct lending. And the question will come when there potentially some losses associated with that. The programs that the FED did while I was there, we didn't have have losses associated with those. Um if there are losses, even though in some sense

that's what the Congress wanted. If they want the FED to lend where banks otherwise wouldn't lend, they're directing them to take on more risk than otherwise would have been the case because the private sector wasn't doing that. But then when the losses occur, no one wants to bear those losses, and so there will be a lot of a lot of finger pointing and questions about well, why

did you take those kinds of risks? And and so I think that's going to be one of the tensions going forward if we turn to the future briefly, there is there has been a fewest political debate about whether and how much fiscal stimulus is needed for the US to to make sure that it doesn't go into another recession. Would you be worried about the short term outlook for the US economy if it wasn't possible to pass another stimulus. I think the key is really where the money is spent.

I know there's been a debate over two trillion versus three trillion um that the Trump administration and the Republics I proposed to true trillion. That wasn't enough where the members of the House, these are very large numbers. And uh, and I think it's not just you know, when you're in that realm, it's not two versus three trillion, but

how are you spending it? And and I think the most important thing is to try to UM build databases and get data on where are the worthy infections and then do track and trace so that you can quickly respond. That's the most effective way to try to save lives and save livelihoods. Unfortunately, very little of the previous UM stimulus packages were focused on the health issues directly focused on the data collection and data dissemination issues, track and trace,

those kinds of things. So I think it's it's more about how you're spending it, um, you know, given that, I think both sides will want to spend a fair amount of money rather than the specific number, given that it's it's quite a large, quite a large amount. There's a Randall Crosner, thanks very much, Thank you very much, Tyler Code. We don't know what's going to happen, or

we don't know exactly what's going to happen. It does look like the Democrats have not swept the board, shall we say, um, So we're possibly that may limit the scale of the changes we might see over the next four years. But if we're just stepping back and looking at the last your four years, how has Donald Trump changed the economy? What's one of the big things that will stand out for historians. I think the biggest thing that will stand out is that he didn't change the

economy much at all. In fact, so there was a recovery. He oversaw that the recovery in some ways accelerated. That was good news. COVID is a separate story. Obviously, it hit the economy. But I'm not sure how much that will be connected with Trump, because it's happened to the whole world. So Trump will be seen as important in the realm of ideas more than the realm of economics.

And what if you were going to pick one good thing, maybe one bit good shift that happened, at least in part as a result of his actions, that might have helped America's future prosperity, what would you what would you point to? I bet he would look at the stock market, But what would you look at Operation warp speed accelerating the progress of the vaccine. It's been pretty phenomen and all Trump gets some of the credit for that. People

underrate that. And what do you think for someone coming in, anybody coming in, what would you most want to reverse or what would you start want to start to push against you for the long term good of the country economically, Starting in January, we had two full months to prepare for the pandemic and essentially did nothing, and that also hurt our economy greatly. That was completely our own stupidity and own goal, partly the fault of our president, though

not only. And if we could do that over again, we'd be in a much better position right now when you're looking back at um this potential scarring of the COVID recession. You know, we look in Europe and we think, well, potentially the US with its more flexible labor market with only without the sort of furlough scheme, so that lots of people, although they had higher benefits, they were thrown

into unemployment m forced to fend for themselves elves. There's some expectation that maybe the adjustment in the economy would be faster once we start moving away from the pandemic, and the scarring will be less in the US. Do you buy that or do you think there is a lot of scarring that's now baked into the impact of this recession. Well, both are true. There's a lot of scarring, but it's much worse than Europe. I don't think that's

a hypothetical. I think we already see it. So Americans have learned to live with a certain level of COVID that's quite unfortunate in many ways. But I don't think we'll have the snap back in terms of expectations and retail sales that we're seeing in so much of Western Europe. We've had a steadier course for our pandemic. And you

mentioned that Trump inherited a pretty nice economy. Clearly the next four years that whoever inherits the White House is not going to be looking at as as good a picture. How would one play? I mean, what's what are the what are the priorities for whatever? So whichever side you're on, fighting back the pandemic is the number one priority. Getting a vaccine out there distributed in a safe, effective and

timely manner. That won't be easy, even if you're a big optimist on the biomedical front, Convincing enough Americans to take it, setting up the distribution networks that would be a challenge to any leader of any country. I think we'll do okay, but we'll see. And if there's no scope for stimulus, if we get good luck. Mitch McConnell has already said he wants there to be stimulus. Now. The devil is in the details. But I think there are political gains from trade and we'll no soon enough

who has one what. I think there'll be a deal right away. It won't be what I would choose, but we'll get something and pretty soon. And you don't think the risk. I mean, at this stage one might say that that the beginning is a kind of shock and are approach to fiscal stimulus that you need a lot of money quickly and get money into households hands, which

arguably the first stimulus package did. Um that this age, when you're in a bit more of a kind of mature form of recovery or hope hopeful recovery, where the money goes is more important. Would you buy that? I would look at it a little differently. If you think we might be able to start distributing a vaccine by say January or February, you want to redirect stimulus to areas that need a very immediate you know, tiding over

that might be some state in local governments. But then you do in fact need much less stimulus compared to say what was required in March. So it interacts with the biomedical side, and we may be at the point where we're trying to patch holes. We we can't solve all of the problems. And finally we we talked to Reddy Crossner earlier about where the FED comes out of the first four years of Trump. Do you think the FED is in a sort of more more perilous position

given the UM. Now it's so strongly associated with Trump's efforts to support the stock market, and has UM really gone out of a limb to support the economy buying up chunk junk bonds and other things. This year, I think the FED, Amazon, and the NBA have proven themselves to be the truly well functioning institutions in America. The FED didn't even have to use up all of its lines of credit. And let's hope they're standing ready next time around. Tyler Cone, thank you very much. Thank you.

M Now you'll remember that one of the facts about President Trump's four years in office that he's most proud about is what's happened to the stock market. The SMP five hundred index has risen fifty since he took office. It's not the highest ever return, as he might often claim. In fact, the same index rose in President Clinton's first four years in the But here's one way that Trump's stock market rally really is different, because it rests on the value of assets that you can't see and you

can't touch. If you sold all of the physical assets tangible assets in those SMP five companies, you'd only get to about a fifth of the supposed market value. Everything else, that's about twenty two trillion dollars worth of market capitalization comes from intangible assets like algorithms or lists or brands,

a lot of invisible assets. We had a fascinating story about this on Bloomberg recently, written by reporter Sarah Ponsek, and I wanted to dig into it because it seemed to me to have so many implications for the US economy and for policymakers everywhere and here. To talk to us about some of those implications is New York University professor barru Clev, whose writings on this topic have spurred something of a debate on intangible assets. Professor Lev, thank

you very much for joining us. I should start by asking you, is there's a Is this a new phenomenon that quite so much of the value of our the US major stock market is actually is intangible assets. It's definitely not a new phenomenon, and it's at least twenty five even thirty years. It really started in the mid eighties when investment in intangibles, meaning investment in research and developments and information technology, brand human resources so passed in

the United States. Investment intangible assets thinks that when they fall you can hear them. The traditional investments machines, structures, and so on and so on, and the gap between the two is growing. Today. Investment in intangibles in the United States annually is the staggering sum of about two and a half trillion. With the t trillion dollars investment

intangibles is about t off it. So it's a complete transformation of the US economy and to to a large extent, others economy is to definitely the UK, China, to some to some extent North European countries and so on and so on. So it's a it's it's an incredible transformation with lots and lots of consequences positive and negative. And I like your your definition of the of a physical asset.

I remember when we were thinking about the difference between goods and services when I was just learning economics, and and a good was something you could drop on your foot. But it's certainly true the intangible assets you can't drop on your on your foot. Now, one of the things that people have highlighted as a really serious implication of this and why it's so important for our economy, is

that it has contributed to rising inequality. I know this is complicated, but what is the read across from the two. Why does it Why does not having physical assets like factories make it more likely that the profits from these companies will be concentrated in fewer hands. Those intangible assets like patterns and music and content things like that have many qualities which differentiate them from tangible assets. But the

main one is what the economy is called scalability. And airline can sell a seat on an airplane to only one person per flight, but if you are selling drugs, if you are selling software, if you are selling music, you can add this same time sent to millions and millions of companies. The skies really limits. That's the scalability of intangible assets. That's what creates the enormous profitability their normals size. And I want to emphasize and not just

speaking about Apple or Google or Amazon. We all know that these are gigantic, historically gigantic companies. I'm speaking about hundreds and thousands of companies that are reaching intangibles. Intangibles have all kinds of advantages spoke about. They create huge profits, size, some of them dominate, many of them dominate market but they have a dark side, and the dark side is that it's very, very difficult to manage and developed intangibles.

Those who are intensive in intangibles need very very skilled employees. And I don't mean just at the top. I mean they need are and the scientists. They need software engineers, they need content creators, they need patent experts, they need sales persons. All of these people are handsomely paid, not because the companies are good out but because they're highly skilled. So the intangibles, the complexity of the task, the need for very skilled people is a major reason for income inequality.

Economy is estimated that about two thirds of income inequality comes from this fact. I guess what you're talking about, an essence, This is there's sort of two big things that contribute to the inequality. The scalability of these assets. The fact that you can produce you can sell unlimited amounts at some level rather than this scarce supply of airline seats as your example. Um it can make it a very very profitable company for a very small input

of labor and physical investment. Um So, and that says very unlabor intensive, but you can make a lot of money, which could go to a relatively small number of people. I guess that's one part of it. And then the other part is what you've been saying about their reliance on super skilled people who will themselves need to be highly paid to be to hold onto them. Is that would you say that's about this sort of is the

two pieces. It's the sort of scalability and therefore the potential for very high profits for a very small number of people, but also the highly skill I would take one small except it's not a small number of people. I mean if you look at if you look at large tech companies like Google and Amazon, they employ hundreds of thousands of employees. It's not just a few. And that's that's that's the major effect on incomil equality. It's not just at the top of one tenth of one percent.

We are speaking about millions of people who are really highly highly paid because those intangible intensive companies employ lots and lots of of people. But the number of people who are employed by by others is of course even larger than that, and they are less skilled and much less paid. In this case, I guess the example that people have in their minds is when you have a beginning of one of those companies where the market value can be extraordinary. And you really are just talking about

a single office full of people. But what you're saying is that most of the story is actually once these companies have got big. Yeah. Yeah. The fact is. The fact is if you look at sizes of companies, the big get bigger, and the small stagnates. That's the said thing about it. Most of the small and I'm talking about thousands of companies, not a few, most most of the small stagnate in size, stagnate in profitability, many of them are losing money. They can el afford investment in

new technology, investment, high skilled employees. You have a whole huge sector there that is really doomed to a continue struggling, just continuous struggling. And we're thinking in part on this program about what some of the policy challenges are for

the next four years. And I wonder, I mean, the the basic rules that most companies have, the way that accounts are designed and companies are taxed and and regulated, were made for a time which a much bigger proportion of a company's value was in things that you could you could see and touch. Do you think there are there are changes that policymakers could make or should make um for us to for these for these companies to thrive, but also perhaps not contributing quite the same way to inequality.

I'm not a great believer of philosophically in government intercasion in the regulation. I am in Old Chicago, a PhD professor, UH there for several years. I can think of several things that will decrease significantly the income inequality. Basically being an educator or university educator all my life training, training, training is my motto. For example, all those young people at colleges and universities all over the world, My my

suggestion for you is, don't spend your time on useless courses. Uh, spend it on something that you can transform into a skill that will be demanded. And I'm not just speaking about social engineers. I'm speaking about content creators and and brand men managers. There is a whole slew of things that will will prob will enable you to become skilled persons. I just thinking about the gap with governments and do massive investment in vocational schools very important, Professor lev thank

you very much for joining us. Thank you, thanks for listening. To Stephanomics. We'll be back next week with more on the ground reporting and analysis about the global economy. Remember you can always find us on the Bloomberg terminal, website, app, or wherever you get your podcast. You can also get more news and analysis from Bloomberg Economics right through the

week by following as Economics on Twitter. This episode was produced by Magnus Hendrickson, with special thanks to Randy Krosner, Tyler Cohen, and baroque lev Lucy Meekin is the executive producer of Stephanos and the head of Bloomberg Podcast is Francesco Levia.