ECO201 Should a President Make GDP and Stock Market Predictions Paper
ECO201 Should a President Make GDP and Stock Market Predictions Paper
Instructions
Below you will find references to outside readings that are relevant to the material in this chapter, as well as several prompts for you to respond to. Some of the readings are from the business press, some are editorials, and some are from government entities. Please distinguish positive statements from normative statements appropriately.
Please respond to as many of the prompts as you wish.
Do not attempt to address all of them; discussing a half dozen or fewer of the prompts should suffice.
There is no specific length requirement, but each response should be several paragraphs in length.
You should exceed 500 words but should not need to exceed 1000 words for any given question.
I recommend that, in order to avoid potential technical difficulties, you draft your response in Word, then upload it into Canvas, being careful to not submit the Quiz until you have uploaded all of your responses.
You may be asked to describe both (or more) sides of an issue, to take a position as to which is more compelling to you, and describe how you arrived at such a conclusion.
Where your opinion is requested, there may be no right or wrong answer, but a thoughtful and well- reasoned response is preferable to one lacking these characteristics.
Your score for this question will depend on the quantity and quality of your responses, including your correct application of economic theory and the support you offer for your positions.
You should not need to use additional references, but if you do, please be sure to cite them.
As I express frequently in class, part of my objective in this course is to provide you with the tools to form your own positions on economic issues. Although my positions may frequently be apparent, it is not my intention to impose a position on the class, only to agitate the class to intelligently develop their own.
Although some of these narratives are political in nature, it is simply a result of the reality that economics and policy are inherently intertwined. You are encouraged to express political and policy positions as they relate to economics and are assured that while your expression of the positions themselves will not impact your grade favorably or unfavorably, your ability to support those positions will be considered.
Essay 8 GDP: The Anemic 3% Obama Recovery and the Trump 6% Forecast
Please open, read, and refer to some or all of the following articles:
https://www.cnbc.com/2017/08/03/trump-stock-market-rally.html (Links to an external site.)
https://www.cnbc.com/2018/01/26/gdp-q4-2017-first-reading.html (Links to an external site.)
As the text demonstrated, although there are many potential errors in the data or flaws in its collection, GDP, real GDP, GDP growth, and GDP per capita are related metrics generally interpreted as a measure of a country’s economic health and the well-being of its citizens.
If, ceteris paribus, achieving higher GDP and GDP growth are preferable to achieving lower GDP and GDP growth, it would be important for fiscal policy to be supportive of this endeavor.
Then-Candidate Trump heralded tax cuts, deregulation, and infrastructure spending as the major economic policies he would implement in order to stimulate the economy and cause it to grow more rapidly.
(Interestingly, President Trump’s policies seem to be consistent with many Keynesian components of President Obama’s platform. You may recall that President Obama proposed government spending on “shovel-ready projects” to help repair our crumbling infrastructure and to combat unemployment, and tax cuts for individuals to allow the middle class to reduce debt, save for retirement, and resume a more normal level of consumption. Fiscal conservatives in Congress opposed these policies on the grounds that the additional spending would lead to an increase in the national debt, and many of them went unrealized).
In the first year of The Trump Administration, President Trump has taken a huge step towards achieving the goal of improving GDP growth by working with Congress to pass the most significant corporate tax cut legislation since 1986. This new corporate tax policy has led the World Bank to revise upwards its previous forecasts for global economic growth.
This “supply-side economic theory” tax policy, combined with sweeping deregulation (some completed, some in progress, and some on the horizon), have many investors excited at future earnings prospects and have chased the stock market to an all-time high.
According to U.S. GDP data available from the Bureau of Economic Analysis and Global GNP data available from the World Bank, historic real growth in the 3-4% range is quite normal. In the years since the start of the Great Recession, however, GDP growth has been below that trend. It has been observed that President Obama is the first United States president to never experience a yearly GDP growth above 3% in his entire term, although GDP exceed 3% for several quarters of his Administration.
On December 6, 2017, and consistent with his campaign assertions, President Trump stated to his Cabinet, “So, we’re at 3.3 percent GDP. I see no reason why we don’t go to 4 percent, 5 percent, and even 6 percent.” This forecast is significantly higher than the 30-year and 70-year U.S. averages, more than double the 30-year average and nearly triple the projections of the Congressional Budget Office. (CNBC.com December 6, 2017).
GDP growth was improving throughout 2017, but was lower than expected in the 4th Quarter of 2017, due to an increase in imports. For the year, the growth rate was 2.2%. The Trump Tax Cuts seemingly contributed to increased economic activity in 2018, with the growth rate settling at 2.9%. The first quarter of 2019, which was expected to be muted by a slowdown in China, an escalating trade war, a partial government shutdown, and the recently identified poor Q1 trend, exhibited a surprising 3.2% growth rate, based on the first estimate on April 26, 2019 (Data retrieved from Bureau of Economic Analysis).
Do you believe that the President’s policies will motivate 6% GDP growth?
If you do not believe the President’s forecast, whose do you believe?
CBO? Federal Reserve? World Bank? IMF? Other?
Do you believe the U.S. will remain approximately on trend, regardless of the President’s policies?
Would expecting higher growth motivate you to spend more?
If the President is right, do you believe that the U.S. could sustain this growth indefinitely?
If the President is wrong, and the U.S. only achieved 5% or 4% or 3.5% growth, would that demonstrate a defeat and a failure of his economic policies or just a reduced level of winning?
Does a President deserve credit or blame for the economic conditions that occur on his watch?
Does it matter what the conditions and trends were at the beginning and end of his term?
Does President Nixon deserve responsibility for leaving a recession to President Ford?
Does President Ford deserve responsibility for not turning the economy around?
Does President Carter deserve responsibility for stagflation and leaving a poor economy for President Reagan?
Does President Reagan deserve credit for a booming half-decade, but responsibility for the recession that President George H.W. Bush endured in 1990 and 1991?
Does President George H.W. Bush deserve responsibility for the recession he oversaw that may have resulted from the booming decade during which he was Vice President?
Does President Clinton deserve credit for a booming half-decade, but responsibility for the recession that George W. Bush inherited?
Does President George W. Bush deserve credit for a booming half-decade, but responsibility for the recession that President Obama inherited?
Does it matter that almost the entire world suffered a downturn simultaneously at the beginning of President Obama’s term?
Does it matter that Congress prevented President Obama from implementing the Keynesian policies that he would have preferred?
Does President Obama deserve credit for the recovery from the recession and credit for the upward trending and solid economy that President Trump inherited?
Does it matter that the world was beginning to enjoy “global synchronized growth” at the end of president Obama’s term?
Does President Trump deserve credit for the economic and stock market growth during the first year of his administration?
Does it matter that most of the world was enjoying unprecedented “global synchronized growth?”
Does it matter that several of the countries with the largest economies have done better?
President Trump has also broken tradition by commenting on, and taking credit for, the rapid rise in the stock market.
According to research reported in Forbes Magazine, the annualized S&P 500 performance during the terms of the past 15 presidents finds that George W. Bush was 14th (-3.8%, ahead of only Herbert Hoover, who oversaw the decline into the Great Depression), Jimmy Carter (12.4%), George H.W. Bush (14.7%), Ronald Reagan (15.1%), and Donald Trump (15.3% [as of October, 2017]) were in the middle, and Barack Obama (16.2%) and Bill Clinton (17.4%) were at the top.
Does President Obama deserve credit for the more than doubling of the stock market during his administration?
Does it matter that he inherited a bear market that hit its trough 2 months into his administration?
Does President Trump deserve credit for the 25% rise in the stock market during the first year of his administration?
Does it matter than many of the major stock market indices around the world have performed better?
How do you reconcile Candidate Trump’s campaign assertion that the stock market was a “big, fat, ugly bubble” (Presidential Debate, September 26, 2016, when the Dow Jones Industrial Average was trading at about 18,000) that would “come crashing down” if the Federal Reserve raised interest rates “even a little bit” and celebrating with a Tweet “Dow just crashes through 25,000. Congrats!” (January 4, 2018) and stating, “I guess our new number is 30,000.”
Is it ok for the President to make statements that embellish the stock market performance on his watch while making counterfactual and disparaging statements about the candidate he defeated?
“Had the Democrat won — the stock market is up almost 50 percent since my election — had the Democrat won, I believe you would have been down 50,” he said. “That’s the direction we were headed.” (CNBC interview. January 26, 2018)
If the stock market were to crash or experience a dramatic correction, would it be President Trump’s fault? Would he really just be right about his earlier statement that we are in a bubble?
Do any of these circumstances and spurious correlations raise the issue of the “fallacy of false cause,” sometimes described as “correlation does not imply causation,” that we have discussed throughout the course?
(Remember, of course, that the tax cuts were not passed until December, 2017, and did not take effect until 2018. Remember, also, that all Presidents operate in their first year under a budget passed by their predecessor).
Should a President make GDP and stock market predictions?
If so, should he disclose the methodology he used to arrive at those predictions?
Feel free to opine on other issues related to this topic.
