In his short and stimulating book, Jason L. Riley, a columnist for the Wall Street Journal and the biographer of Thomas Sowell, argues that, far from being a bigot, Donald Trump was a boon to blacks. During Trump’s first three years in office, Riley writes in The Black Boom, “median household incomes grew by 15.4 percent among blacks while growing by only 11.5 percent among whites.” By comparison, between 2009 and 2015, while Barack Obama was president, incomes rose 2.3 percent for blacks and 4.4 percent for whites.
Riley writes that “the gains of blacks prior to the pandemic were unprecedented.” He cites research showing that an average of 400,000 new black wage earners entered the workforce in each year of Trump’s presidency, compared with 250,000 during Obama’s terms. Black unemployment in 2019 hit the lowest level on record.
It’s not that Trump “set out to narrow racial inequality,” Riley writes. Instead, it was a case of a rising tide lifting all boats—but apparently lifting modest dinghies more. Trump’s “stated goal on the campaign trail was to grow the economy to the benefit of the working class,” and, in fact, wages of Americans in the 10th percentile (that is, the bottom tenth of earners) rose at a rate 50 percent greater than the wages of the average worker between 2017 and 2019. According to the Council of Economic Advisers, new lows in unemployment were “achieved for Asians, Hispanics, American Indians or Alaskan Natives, veterans, those without a high school degree, and persons with disabilities, among others.”
Riley attributes these accomplishments to two Trump policies: the cut in the corporate tax rate from 35 to 21 percent, which took effect on the first day of 2018, and reductions in “regulations that he argued were weighing on economic growth,” especially in the energy sector. Riley cites a Cato Institute study finding that the Trump administration instituted 36 percent fewer new rule-makings than Obama—although the Cato study adds that “an unintended consequence of federal deregulation under Trump has been growth in state and local regulations.”
Corporate tax cuts were the key, but how exactly did they boost the economy? Riley offers little explanation. He cites employers such as Walmart immediately announcing wage and salary increases (though these were mainly public-relations gestures that were small related to total wages). The author quotes the Harvard economist Gregory Mankiw as saying, “Over time, lower corporate taxes…attract more investment in the corporate sector, increasing workers’ productivity and thus their wages.”
Economists differ on whether tax cuts benefit an economy, but the weight of the evidence is that they do, especially if the cuts are at the margin—that is, declines in the amount that people and businesses pay on every extra dollar they earn. Lower marginal rates, the theory goes, are an incentive to work and invest more. For example, a widely cited 2018 paper in the Quarterly Journal of Economics by Karel Mertens of the Federal Reserve Bank of Dallas and José Luis Montiel Olea of Columbia University looked at data from 1946 to 2012 and found that a one-percentage-point decrease in the tax rate increases real GDP by 0.78 percent in the third year after the tax change. These things shouldn’t be decided by a vote, but it is significant that in a 2012 University of Chicago poll of top economists, 35 percent agreed that a tax cut would lead to more GDP growth in five years, just 8 percent disagreed, and 35 percent were uncertain.
Unfortunately, the real-life results of the Trump tax cuts have so far been discouraging—a fact that has elicited broad comment but is ignored in The Black Boom. For example, a 2020 study by Filippo Occhino of the Federal Reserve Bank of Cleveland found that “business investment…grew more slowly after the tax reform than before it.” Average quarterly growth of business investment in 2018–19 was 2.8 percent, compared with 4 percent in the two preceding years, 3.9 percent during 2013–17, and 5.5 percent during 2010-17 (the post-recession Obama years plus the first Trump year, which preceded the tax cuts).
In a paper for the center-left Brookings Institution, William Gale and Claire Haldeman conclude that the tax cuts “had little impact on business investment through 2019” and that the investment growth that did occur was “a response to increases in oil prices, not lower tax rates.” They conclude that “overall investment growth petered out by the end of 2019.”
Riley errs in citing a statistic to show that the tax cuts worked: “As remarkable was the change in gross private domestic investment [GPDI], which is a measure of how much money domestic businesses invest in their own country. It had declined by 1.3 percent in 2016 but grew by 4.8 percent in 2017 and by another 6 percent in 2018.”
Sorry to sound pedantic, but GPDI includes three elements: residential fixed investment, nonresidential business investment, and changes in inventories. The increase that Riley talks about was driven by the first element, residential fixed investment, which jumped 10 percent in two years. But it is nonresidential business investment that improves productivity and drives an economy. Business investment is what Trump’s corporation tax cut was targeting.
I’ll admit to being surprised at the pallid response of businesses to the cut. I’ve been an advocate for lowering our corporate tax rates simply because they were the highest in the developed world and put U.S. firms at a disadvantage to international competitors. The high rates also encouraged American companies to keep profits on foreign sales abroad rather than repatriate them. In fact, my preference would be to get rid of corporate taxes entirely, as Milton Friedman urged.
Still, in this case, it’s hard to argue with the data. Not only did business- investment growth decline, but during the three Trump years preceding the pandemic, gross domestic product (the best metric of economic performance) averaged 2.5 percent, compared with 2.4 percent during 2014–16. On a chart, it appears that the Trump economy was merely an extension of the Obama economy. Riley disagrees by noting that 2016 itself was a poor year for the economy and that Trump greatly exceeded “expectations at the time.”
I am not saying that Obama was a good economic steward. His stimulus policies were a failure, as I predicted they would be in these pages at the start of his tenure.1 As a result, instead of the usual sharp recovery after a sharp recession, we puttered along with mediocre growth. Riley may be right that low-income Americans did better for a few years under Trump, but that boomlet failed even to bring the U.S. up to its average post–World War II growth rate of a little over 3 percent despite Trump’s own claim that “I think we can go to 4 percent, 5 percent, and maybe even 6 percent.”
We will never know the effects of the tax cuts for sure. It’s impossible to run a controlled, randomized experiment with a national economy. Unlike how you test a new drug, you can’t give half the population a tax cut and the other half no tax cut to see who does better. A Tax Foundation review of seven recent papers in top economics journals found unanimously positive effects of tax-rate reductions, but the review warned that “other factors that impact economic growth, such as government spending and monetary policy, could understate or overstate the impact of taxes on growth.”
Government spending, which is generally seen as boosting growth, remained about the same proportion of GDP (20 percent) in both the late Obama and Trump years. On the other hand, the Federal Reserve kept interest rates higher under Trump than under Obama, so perhaps a positive tax-cut and deregulatory effect was reduced by a negative monetary effect.
In addition, wages at the lower end of the earnings spectrum may have risen from 2017 to 2019 because states were increasing their minimum wages. Riley points out that in 1995, only nine states had minimums above the federal level of $7.25, but by 2020, “the number had grown to 29 states, plus Washington, D.C.” The minimum wage for large employers in New York state, for example, rose from $11 at the start of 2017 to $15 at the start of 2019. In Colorado, the minimum jumped 19.4 percent over the period.
Riley devotes an entire chapter to what he calls “the minimum wage canard,” and, again, the weight of the evidence indicates that the policy does reduce employment and hours over the long run as businesses shift from people to machines and deploy, for example, two higher-paid, better-skilled workers whose wages are not controlled by law, to replace three lower-paid, lesser-skilled workers whose wages are. Still, over just a couple of years, it’s certainly possible that higher minimum wages played a role in boosting the household income of low-income black workers especially.
While he gives Trump enormous credit for improving the lot of black people, Riley takes pains to show that he is not a MAGA man: “I did not vote for Trump in 2016 or in 2020.” Riley was appalled by “Trump’s derogatory comments about women and minorities, his marble-mouthed responses to white nationalists, and his behavior on January 6.”
Riley also objected to Trump’s immigration policies and finds they did nothing to improve the economy. The president, writes the author, “viewed immigrants, whether they were here legally or illegally, as economic threats.” He notes that many black leaders, including Booker T. Washington, have had the same opinion but that the data show clearly that immigration does not affect natives’ unemployment or the labor-force participation rate.
The Trump administration’s “anti-immigrant agenda was presented as a way to advantage U.S. workers in general and black workers specifically,” but, in fact, illegal immigration did not change much under Trump. Border apprehensions increased, writes Riley, but deportations fell. “The size of the unauthorized population in the United States remained largely stable.” Riley adds, “Under Trump, legal immigration increased…even as wages for less-skilled workers were rising fastest, and rates of unemployment and poverty for blacks and Hispanics were dropping to historic lows.”
In an unusual act of generosity, Riley allows the liberal journalist Juan Williams and the conservative academic Wilfred Reilly short chapters to rebut his arguments. Williams argues that the “lion’s share of black economic progress [took] place under Obama.” He notes that from the start of 2014 to the end of 2016, black unemployment fell from 11.9 percent to 7.9 percent; or about one-third; under the first three years of Trump, the decline was from 7.9 percent to 5.8 percent, or about one-fourth. This is a good rhetorical point but an unfair comparison—first because it’s harder to lower rates when they are already low and, second, because it glosses over Obama’s biggest failure, the delayed recovery from the Great Recession. Six years after that recession ended, black unemployment was still in double digits; that’s a crime.
Riley gives short shrift to another element of the Trump economy that may have affected growth: the tariffs that the president imposed on China and other countries, which served to raise prices and chip away at the beneficial global free-trade edifice that has been carefully constructed since the end of World War II. There’s another likely deterrent as well. Trump’s penchant for economic and diplomatic isolation and his own erratic behavior may have deterred investment by both Americans and foreigners.
In the end, I agree with Riley that Trump was good for the economy, but I fear it is premature, at best, to say that he created a kind of “black boom.” It is unlikely that such a boom will occur, in fact, without changes in the social patterns that Riley has eloquently advocated, citing the late Daniel Patrick Moynihan’s 1965 report, The Negro Family: The Case for National Action. As Williams writes, Riley “specifically points to the economic boost that comes with maintaining two-parent families. I agree wholeheartedly. And black Americans sadly lag in this category.” Economic achievement is correlated with intact families, but 69 percent of black babies are born to unmarried women.
Jason Riley deserves congratulations for writing a book that, despite some flaws, presents a dispassionate and mostly evenhanded discussion of a phenomenon that remains mysterious and at this point still unknowable: the effect of Trump’s economic policies on blacks and on America as a whole. Our divided media have cast dim light on this important subject; Riley has let in the sunshine.
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