Why such growth in GDP?



Obama said it was impossible. But that was under Obama economic policies. With Trump as president we have a whole new set of pro-growth economic policies. The socialist-leaning Obama was simply accelerating federal debt increase by pumping money into the economy adding, by far, the most to federal debt we have ever seen during one president’s administration. His economic policy contained little stimulus other than the government spending more money—largely giving the money to Democratic-friendly companies that highly mismanaged the funds.

Trump, on the other hand, has cut corporate and personal income taxes, made trade agreements more fair, increased oil/gas drilling and distribution, reduced burdensome business regulations, encouraged manufacturers to come back to America, improved small business loan opportunities, set an efficiency example by streamlining government operations, and personally promoted American business around the world. His economic policies have resulted in a much better distribution of working funds across the economy as he has avoided the politically biased allocation schemes of Obama.

The impact of Trump’s initiatives has caused both consumer demand (D) and business supply (S) functions to advance to higher levels—to shift dramatically to the right. This shift of both functions, D and S, has led to higher gross domestic product (GDP) because quantities demanded and quantities supplied have increased proportionately (supply has been expanded to match the demand increase) thus preventing prices from rising appreciably (minimal inflation).

To gain additional perspective into this demand and supply growth, consider the following employment ratios: (1) labor force participation rate, (2) employment rate, (3) average hours worked, (4) output per hour, and (5) wages per hour. According to the Bureau of Labor Statistics each of these ratios has increased substantially under Trump (not so under Obama).

The labor force participation rate is basically the percentage of people in our society who are willing and able to work—the labor force size divided by the population size. The employment rate is the percentage of the labor force which is employed—the number employed divided by the labor force size. The average hours worked is simply the total hours worked by all employees in the country divided by the number employed. Output per hour (productivity) is total national output divided by total hours worked. Wages per hour are total wages received by all employees divided by total hours worked.

If you multiply the labor force participation rate by the employment rate by the average hours worked by the output per hour, you get output per person which is significantly higher under Trump than under Obama because each of the component ratios going into the calculation of output per person is higher. If you multiply the labor force participation rate by the employment rate by the average hours worked by the wages per hour, you get wages per person which is also significantly higher under Trump than under Obama because each of the component ratios going into the calculation of wages per person is higher.

Now, when output per person is up and wages per person is up, it means you have greater supply, and greater demand to take that supply off the market. This means greater gross domestic product (GDP) with little or no inflation, which is exactly what we have in our economy right now.

Amplifying the impact of increasing wages per hour has been the fact that consumer demand has been increased due to increase in disposable income per hour (since personal income taxes have been reduced) and increase in discretionary income (since the income required for purchasing necessity goods has remained fairly constant).

The key to continued GDP growth is to keep both demand and supply moving up in sync. Trump’s policies will continue to help. But leftists don’t want this, at least they don’t want it while Trump is in office because it makes him look good and leftists want nothing to do with helping Trump look good, even though it is a real positive for all peoples in the country.

If the Democratic debates are any clue, leftists are quite likely to enact policy, or set up other road blocks, that will thrust the country into a socialist order, dampening or even reversing the strong employment-wage-output conditions achieved in the last two years. Heck, just the false narratives of the leftist media can mess it all up simply by the repetitive failure to tell the truth, or the whole truth, about the economy, or factors affecting the economy. For example, Pelosi and Schumer still falsely claim that employees, on average, did not get a tax cut under Trump—exponential absurdity to say the least!

Phil Grant, Ph.D., Hon. DBA is professor emeritus at Husson University. He is a longtime management consultant/researcher and author of 13 books plus 200 professional/academic articles.

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