Why Trump failed to create jobs

As a candidate, Trump dismissed the stock market boom as a mere “bubble”.  His focus was on the labor market, which was a “disaster”.  He would create lots of jobs.

Immediately after the election, there were a few good economic data points, and the Trump people argued that the economy was already improving under the influence of more positive expectations created by his victory.  So let’s go with that assumption, and look at the economy in the 12 months since the election.  Here is the rise in payroll employment over the past 12 months, as well as during the previous 4 years:

11/16 to 11/17:   2.071 million

11/15 to 11/16:   2.324 million

11/14 to 11/15:   2.729 million

11/13 to 11/14:   2.793 million

11/12 to 11/13:  2.499 million

So why has job growth slowed under Trump?  After all, Trump claimed the “true” unemployment rate was 30% or 40%, so there’s obviously lots of labor market slack.  Right?

Of course I’m being sarcastic.  Both liberals and conservatives claimed there was lots of labor market slack, and they were both wrong.  Liberals made that claim to justify expansionary monetary and fiscal policies, and conservatives wanted discredit the economic performance under Obama.  In fact, we are nearing full employment.  I expect one more decent year in 2018, and then job growth will become extremely slow beginning in 2019.  RGDP growth will also slow in 2019.  I say that because the tax cut will provide a modest boost to the economy in 2018, but not much after that.

Interestingly, this poor job growth occurred despite some very positive tailwinds:

1. Manufacturing employment actually picked up slightly, as the fracking boom resumed and lots of manufacturing jobs are related to that industry.

2. NGDP and RGDP growth has been a bit better in 2017.

3.  There’s been a bit of deregulation.

Despite these factors, we are simply running out of bodies.  Job growth will continue to slow sharply over the next few years, especially in 2019.

Other Trump promises that won’t be kept:

1.  Repeal Obamacare.

2.  Build the wall.

3.  Build infrastructure.

4.  Cut the top personal income tax rate from 43.4%  to 25%.  (Trump will increase it.)

5.  Lock her up.

However Trump will succeed in continuing to move the GOP from being a party of economic/foreign policy/social conservatives, to a paranoid conspiracy theory mongering, fake news, anti-intellectual, pro coal, white nationalist party whose leadership endorses people who long for the days of slavery, want to ban Muslims from Congress and say gays should be locked up.

PS.  Read this horrifying article about what they plan to do with capital gains taxes—increase the rate and make the system far more complex.



27 Responses to “Why Trump failed to create jobs”

  1. Gravatar of Randomize Randomize
    8. December 2017 at 09:52

    Dr. Sumner,

    I’d be curious to hear your thoughts on the tax bill’s impact on academia, specifically the impacts of taxing grad assistants’ tuition, removing the loan interest deduction, etc. And now the house is considering eliminating the loan-forgiveness provisions. Are these changes just more of their anti-academic noise or will they really impact the industry?

    Do you have any feel for what portion of grad students go with the grad. assistant route?

  2. Gravatar of John Thacker John Thacker
    8. December 2017 at 10:00

    Only allowing FIFO I would hate, it would raise capital gains taxes on net, it is I think inefficient, and I oppose. But it would make things simpler. I cannot agree that it would be “far more complex.” (For what it’s worth, the FIFO provision is only in the Senate bill and does face opposition,

    I have to disagree; FIFO is simpler from an accounting perspective, just annoying and would increase taxes. FIFO is the default at most (all?) brokerages; you have to know your way around the complex rules of the system and your lots in order to insist on specific share identification and do it correctly. Only allowing FIFO instead of a choice of methods is perhaps tax inefficient and not the ideal taxation of capital, but it’s simpler.

    Sometimes more efficient tax treatment and simplicity are at odds, and I think it’s the case here. (E.g., exclusion of capital gains when selling a house is definitely simpler for most sellers, but probably not efficient.)

  3. Gravatar of Christian List Christian List
    8. December 2017 at 11:00

    However Trump will succeed in continuing to move the GOP

    I’m not sure how powerful politicians are in the end. Are they really the movers or maybe are they being moved by the voters to a large extent?

    It reminds me of the FED and interest rates. I guess politicians need to reflect voters eventually as much as central bankers need to reflect “natural interest rates” – if they want to be successful.

    The GOP moved into this direction because they won a big election by moving. (At least they think they won because they moved, and that’s what counts.) They will move in another direction again as soon as they start losing. (And if not then they will keep on losing).

  4. Gravatar of ssumner ssumner
    8. December 2017 at 11:43

    Randomize, I don’t know enough about that provision to comment.

    John. Is this wrong?

    “If the law passes as written, investors will want to buy securities in a way that generates a long menu of different cost bases from which to choose in the event of an asset sale. This means purchasing the identical security at different brokerages or purchasing similar securities within the same asset class in the same brokerage account, but either way spreading out their purchases over time. Meaningless diversification within the same asset class and across brokerages suddenly will be the smart tax move.

    It will become less efficient to buy into the same broad market index mutual funds over time, the way most sensible advisors recommend today. This also works to the advantage of the mutual fund companies, who have a whole gang of higher-priced funds to sell.

    Investors might also prefer to take untaxed portfolio loans rather than realize capital gains. Enterprising platforms might find ways to let their investors re-register their investment accounts as mutual funds. That’s the fun part about unintended consequences — we never see where they will go.

    A more complicated, more expensive financial life: isn’t that what we’ve all been dreaming of?

    . . .

    There is a silver lining. As an investment advisor, I will make more money helping clients minimize their taxes under the new rococo regime. In fact, the more bewildering, the better. Thank you, Congress. Keep up the good work!”

  5. Gravatar of Benjamin Cole Benjamin Cole
    8. December 2017 at 16:21

    I think Scott Sumner misfires on this post, or perhaps grazes the target.

    The slower increase in job growth in the last year is coincident with the Federal Reserve raising rates.

    The Fed, in its Beige Books of the last two years has evidenced an increasing near-hysterical squeamishness about “worker shortages” and “tight labor markets.” Some Fed literature has posited the US is “past full employment.”

    The BLS just reported unit labor costs are down 0.7% YOY in Q3. We have deflation in labor costs.


    There are still about 1.2 to 1.3 people looking for a job in the US for every job opening, and labor participation rates are again rising.

    Side note: In a bit of unintended yet depressing irony, Tim Duy reports that the Fed has very little experience, really almost none, at running an economy at even their dubious definition of “full employment” in the last 40 years. Oh, how nice.

  6. Gravatar of Major.Freedom Major.Freedom
    8. December 2017 at 19:12

    This blogpost is fake news

  7. Gravatar of Major.Freedom Major.Freedom
    8. December 2017 at 19:16


  8. Gravatar of Major.Freedom Major.Freedom
    8. December 2017 at 19:17

    “Even though job gains are well in excess of the natural growth rate for the labor market…”

    Sumner is fake news

  9. Gravatar of Major.Freedom Major.Freedom
    8. December 2017 at 19:19

    “The unemployment rate remains at a 17-year low of 4.1%. The unemployment rate in manufacturing dropped to 2.6%, the lowest ever recorded. The unemployment rate among Hispanics dropped to 4.7%, the lowest ever recorded…” – Secretary Acosta

    Is Acosta lying or is Sumner wrong as usual?

  10. Gravatar of Benjamin Cole Benjamin Cole
    8. December 2017 at 19:39

    Add on:

    Now that Scott Sumner is enjoying the perfect weather of the SoCal coast in his own home…he should also be more attuned to West Coast housing markets.

    I can well imagine that an employer anywhere near the West Coast (or Boston, NYC, Pacific Northwest) would have problems “attracting workers.”

    Is this due to “labor shortages” or the extraordinary high cost of housing in the very cities with growing economies?

    What public policies could fix this problem of “labor shortages” on the West Coast? More housing? Perish the thought.

    Let’s suffocate the economy instead.

    A few years back there were recurrent nurse shortages throughout coastal SoCal. I guess it persists.

    From Nov. 2017:

    “In California alone, a shortage of 193,000 nurses is expected by 2030. As a major driver of the state’s economy, the CSU’s mission is to meet California’s workforce demands and the DNP program is structured to bolster this goal.”

    So the state academics have come up with a solution:

    “With Governor Brown’s signing of Assembly Bill 422 into law, the Doctor of Nursing Practice (DNP) becomes a permanent program offered at CSU campuses.”

    Yes, the academic solution to nursing shortages…is to create a Doctorate of Nursing.


  11. Gravatar of Steve Steve
    8. December 2017 at 19:58

    Thacker and Sumner are both wrong.

    Thacker- FIFO adds enormous complexity, because while it “simplifies” accounting for existing positions among single-brokerage investors, it creates enormous reporting and record keeping complexity across multiple brokerages. It also creates terrible incentives for investors going forward as people need advice and products enabling tax flexibility.

    Sumner- Doesn’t understand these aren’t Trump’s ideas, these are garbage ideas emanating from the permanent bureaucracy. Somebody in the bowels of Congress has a book of “garbage that scores well with CBO” and grabbed half the book to jam into the Senate’s version of the tax bill.

    Recall that Obamacare was funded with “garbage that scores well with CBO” but doesn’t work in the real world.

    And Dubya passed the initial “cost basis reporting mandate”, which is an immediate cousin of fifo, as part of his TARP bill that had Hanky Panky Paulson on one knee for Pelosi. That cost-basis implementation was a necessary precursor for making fifo possible, and originated from the same “garbage that scores well with CBO” book.

    The cost basis reporting supposedly closed the tax compliance gap, and using that infrastructure that Bush and Pelosi created to implement fifo supposedly adds an incremental $2 billion over 10 years.

    How is that Trump’s fault?

  12. Gravatar of Jon Jon
    8. December 2017 at 22:06

    First blog post that made me contact congress. Thanks for the heads up Scott. Welcome to SoCal.

  13. Gravatar of Alec Fahrin Alec Fahrin
    9. December 2017 at 13:32

    As someone who worked on the Hill for a semester, I’d say that when numerous people call or email about an issue, the congressman generally hears about it. Of course; that is common sense, but some people claim the calls do not matter at all.
    Nonetheless, FIFO accounting changes? Probably not gonna get many calls.

  14. Gravatar of ssumner ssumner
    9. December 2017 at 16:26

    Steve, You said:

    “Sumner- Doesn’t understand these aren’t Trump’s ideas, these are garbage ideas emanating from the permanent bureaucracy.”

    Of course I understand that it’s not Trump’s idea. Trump doesn’t have any ideas. Please don’t post such garbage here.

  15. Gravatar of dtoh dtoh
    9. December 2017 at 18:20

    Alternative theory. Secular stagnation is a crock. The economy is nowhere near full capacity or employment. Unemployment rate is no longer a useful metric. LFPR is a much better metric. If labor were tight, we’d be seeing much higher inflation. Because of productivity gains that can be had, much higher real growth is needed to generate higher employment growth. Monetary policy is still very tight as judged by low rates. Fed is going screw up policy again (nothing new there) by continuing to prematurely tighten.

    I know you disagree, but I think from an economic theory point of view, it’s plausible. Is there evidence to contradict.

  16. Gravatar of E. Harding E. Harding
    10. December 2017 at 08:44

    Mostly good post, Sumner (though repealing Obamacare, building the wall, and building infrastructure are still very much possible).

    @dtoh, you’re wrong, we’re very, very close to full employment. Sumner is totally right here.

    Any Republican president would have proudly endorsed Moore, just because he’s a Republican. Trump, if you remember, actually endorsed Strange in the primary. You still not takin’ your meds, Sumner?

    “from being a party of economic/foreign policy/social conservatives”
    Who kept spending above historic norms while controlling both House and Senate, are stuck in the 1970s in regards to foreign policy, and held the exact same views as Moore still does on gays back in 2000. Sumner, I can’t believe you’re this stupid.

  17. Gravatar of E. Harding E. Harding
    10. December 2017 at 08:47

    The GOP has, in fact, become more liberal on gays during the Trump era because of Trump. Even Ted Cruz has become a social liberal on this. However, Trump has still widened the partisan gap on gay issues because of his attraction of non-college Whites/repulsion of college Whites. That’s how Moore still wins.

  18. Gravatar of Peter Peter
    10. December 2017 at 11:46

    To be fair here, Trump has no control over items 1 to 4 nor any president for that matter. His failure to follow through on number 5 though is disheartening as it is well within his authority. You are correct he won’t do it but that really is the only one that bunch you can really hold him accountable for.

  19. Gravatar of Major.Freedom Major.Freedom
    10. December 2017 at 13:06

    Obama recently claimed responsibility for the booming economy since the election.

    Even Sumner’s political heroes can’t ignore reality.

    “Trump doesn’t have any ideas.”

    This comment is evidence Sumner has the intellectual equivalency of a 12 year old with ostrich syndrome.

    Can’t even admit there are ideas to debate, must be so intolerable to not know how to even respond anymore, just pretend there is nothing to debate.

  20. Gravatar of Benjamin Cole Benjamin Cole
    10. December 2017 at 22:14

    OT, in the ballpark, a little bit of cherry-picking, but still fun.

    Unit labor costs in the US in Q3 2017 were below that of Q4 2015. Deflation in unit-labor costs.

    My guess is Q4 will make it a two-year period during which US labor costs fell.

    The future? We could be in the 1990s path where increasing productivity offsets very moderate compensation gains.

    Unless the Fed suffocates the economy….


  21. Gravatar of SG SG
    11. December 2017 at 06:59

    Scott, I suggest you do a regular NBA feature maybe weekly or every other week or something.

    I still can’t get past your love for Westbrook’s MVP season last year. I mean, look at a guy like Victor Oladipo, who is playing out of his mind for Indiana and is going to take them to the playoffs even though the rest of that Pacers team STINKS big time.

    When Oladipo played with Westbrook last year, his game was utterly lifeless. No point in moving without the ball, you just get in Russ’s way as he plows to the basket. So he stands in the corner, getting the occasional pass that would Russ would kick out, like Hawking radiation escaping from a black hole.

    And this year, can anyone make a plausible argument that Paul George, Carmelo Anthony, or anyone else on the Thunder have had their games elevated by the guy who is nominally the “point guard” of the team?

    What defines greatness in the NBA now is the player’s ability to maximize his own effectiveness while ALSO maximizing the effectiveness of his supporting cast. Curry, Harden, Lebron, Kawhi, all make their teammates much, much, much better. Russ makes his teammates worse.

    PS is Lebron greater than Jordan yet?

  22. Gravatar of John Thacker John Thacker
    11. December 2017 at 08:56

    Steve – Agree on the bad incentives and inefficiency, but not the record-keeping point. The multiple brokerages issue is why the rule will only require FIFO within a single brokerage. (Requiring one brokerage to keep track of other brokerages is unworkable or a lot of complicated record keeping for a taxpayer, and hence isn’t being done.)

    I agree that that’s why people looking to maximize tax advantages will, as the comment mentions, have encouragement to create accounts at multiple brokerages in order to replicate the tax advantages that they were previously getting at a single brokerage. The total amount of record-keeping in their case will increase somewhat by having multiple brokerages. On the other hand, people who don’t bother to get multiple brokerages will have simpler record-keeping (as will the brokerages.)

    In short, they are getting rid of one complicated tax procedure that requires a lot of record-keeping by individual taxpayers to take advantage of. Some people will give up and use the simpler method. Other people will be able to retain the tax advantage by using an even more complicated procedure.

    This is an inevitable problem with any sort of tax change designed to eliminate “loopholes” (for all the problems with that word.) It’s kind of an open question whether it will be simpler or not, depending on response.

  23. Gravatar of Scott Sumner Scott Sumner
    12. December 2017 at 18:17

    Peter, Trump promised us that he would force Congress to do what he wanted, so of course it’s his fault if he does not do so. That was the whole point of his campaign—the other candidates were wimps. Have your forgotten this already?

    SG, Let’s see, so Westbrook caused Oladipo to miss one wide open three after another when in OKC. Even worse, Westbrook went back in time and caused Oladipo to be a mediocre player in his three years in Orlando. It’s all Westbrook’s fault.

    In fact, Westbrook’s drives caused his teammates to have lots of wide open shots. Given how poorly they shot, it’s a miracle that he averaged double digit assists. How often do selfish players average double digit assists?

    The fact is, OKC was a very good team when Westbrook was on the floor, outscoring Houston in the playoffs. They were utterly horrible during the few minutes he went to the bench for a rest, which is why they lost the series. If you reverse the supporting casts, OKC would have destroyed Houston in last year’s playoffs.

    Houston was very effective, but it was utterly boring basketball.

    As for Carmelo, no one can elevate him, even LeBron would be unable to do so. The game has passed him by.

  24. Gravatar of SG SG
    13. December 2017 at 12:15


    It’s not just about getting open shots. It’s about getting the opportunity to play all facets of the game: dribbling, passing, shooting, etc.

    There’s an awesome article in The Ringer about Oladipo’s development over the summer and this season, and I think that it supports the assertion that Russell Westbrook isn’t good for his teammates (it also points out that the Magic are terribly managed and coached):

    “Sports quantitative analyst Steve Shea, who helps LaRoche train pro and amateur athletes, found that Oladipo was miscast early in his career. Lottery picks usually see a steady increase in their on-ball usage on drives, time of possession, and free throw attempts, Shea said. With Oladipo, there was a downward trend. Orlando experimented with Oladipo at point guard as a rookie, then drafted Elfrid Payton and invested in Evan Fournier. At one point, Oladipo was coming off the bench. He was traded to Oklahoma City, where the heaviest usage player in NBA history resided. It’s not as if Oladipo got worse as a player (he scored about 16 points per game in each of the past three seasons). He just never got more chances—only new coaches (five over his first five seasons, to be exact). For example, as a rookie, Oladipo touched the ball for 5.8 minutes per game and dribbled an average of 5.4 times per touch. His final season in Orlando, those numbers dropped to 3.5 and 3.2, respectively, before plummeting to 2.9 and 2.4 in Oklahoma City. As a sophomore, he tallied 9.2 drives per game, compared to just 3.9 last season with the Thunder, per NBA.com.”


  25. Gravatar of ssumner ssumner
    14. December 2017 at 19:32

    SG, I’d say OKC has the same coaching problem as Orlando.

  26. Gravatar of KevinA KevinA
    18. December 2017 at 00:00

    I’ve heard that labor tends to be a lagging indicator. Is it not possible that we could see a bump in say, two quarters from now?

    My general impression is that American businesses don’t suffer that much from taxes, but are heavily weighed down by unnecessary regulations (those that don’t fulfill a genuine C/B analysis) and fear of litigation.

    When I managed the food service area of a local Target a few years ago, what struck me the most is the amount of training employees are forced to go through.

    There is seriously a Target training which explains to employees the proper way to lift objects and how to use ladders.

    Everyone agrees that these trainings were stupid, but from the HR standpoint, they make sense: In the event that an employee uses a ladder inappropriately, Target Corp can fend off litigation by claiming they trained the employee correctly in the art of using a ladder.

    And previous criminal background? Forget it. It doesn’t matter what you did or how long ago, hiring that person would be inviting a big legal liability in the event that person does something wrong.

    The best way to reintroduce rehabilitated criminals to society is by giving them a stable job with which they can start building a foundation. Trial lawyers would rather have an easy target than relaxing the legal liability and allowing corporations to take a chance on society’s most disadvantaged… what a shame.

    In any case, I think its plausible that the Trump Administration has signaled a lighter regulatory regime through employment selections (Ajit Pai) and messaging.

    Knowing that the federal government won’t go after you for having good faith employment practices, even if things go wrong, is more powerful than you would think, and I naturally assume that will translate into a job uptick.

    We’ll see.

  27. Gravatar of KevinA KevinA
    18. December 2017 at 00:24

    Out of curiosity, Scott, would you have preferred a Hilary presidency to a Trump presidency, given the SCOTUS choice, etc.?

    I will look into your blog to see how you determine whether or not we are nearing full employment, but one sentence illuminating how you determine full employment would be helpful.

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