Figures Don't Lie, but Liars Can Figure
Last week, two events of smallish note occurred. On August 13 and 14, the stock market suffered its biggest losses of the year. Also, an “inverted-yield curve” formed. The yield on the 10-year bond briefly slipped below the yield on the two-year note. By day’s end, the interest rates had righted themselves.
I didn’t realize it at the time, but the combination of these events foretold the end of the Trump economy. By the next day, the news was everywhere.
New York Times columnist Paul Krugman announced “Trump Boom to Trump Gloom” and added that “…an inverted-yield curve… predicted six of the last six recessions.” The Guardian asked: “Is a recession coming to the U. S.? Here’s what to watch for.” The Capitol Spectator noted: “The Bond Market’s All-In On Its Recession Forecast.” CNN declared: “A global recession may be coming a lot sooner than anyone thought.”
CNN also published an article titled “From Reagan to Trump: Here’s how stocks performed under each president.” They graphed the performance of the S&P during the administrations of the past five presidents.
Set against the four- and eight-year terms of his predecessors, Trump’s performance looks mediocre. And his modest 25% gain in the S&P to date puts him in the middle of the pack, ahead of only Reagan and last-place George W. Bush.
Ronald Reagan’s second-to-last position got me checking CNN’s figures (they were correct), and thinking about presidential legacies, and how the policies of one president might affect the success of another. So as Paul Harvey used to say: “Here’s the rest of the story.”
Ronald Reagan succeeded the second-worst president in my lifetime, and he inherited Jimmy Carter’s legacy of double-digit inflation and unemployment. During his first term, Reagan and Fed chief Paul Volcker bit the bullet and increased federal interest rates in order to tame inflation, which had reached 13.5% in 1980. These actions depressed the stock market for a while, but ultimately they worked and the market rebounded. By the end of Reagan’s first term, the economy had become robust and the S&P had risen 23%. Reagan won 49 states in 1984.
Near the end of his second term, Ronald Reagan signed a bill to drop marginal income tax rates from 50% to 28%. This would prove a gift to the legacies of his successors.
George H.W. Bush started the first Gulf War and won it within 100 days, and he became immensely popular. But a broken promise (“Read my lips. No new taxes.”) damaged his reputation, and a brief recession during his last year in office allowed Bill Clinton to win by campaigning against “the worst economy in history.” Still, by the end of his term the S&P had gained over 50%.
Bill Clinton was the luckiest president in the 20th century. He benefitted from Reagan’s economic policies; and his mistakes, especially regarding foreign terrorism, would have their greatest impact on his successor. The Clinton years were marked by personal scandal, but little of national import. The S&P gained 210% during his term.
George W. was star-crossed, with disastrous events bookending his presidency. The 9/11 attack that struck nine months into his term was the culmination of planning and lesser foreign attacks that had occurred during the Clinton presidency. Bush was solely responsible, however, for his own ill-conceived decisions to execute wars for democracy in Afghanistan and Iraq. The great recession, which started a year before the end of his second term (the S&P peaked at 1562 on October 10, 2007), was the consequence of home-lending policies that had begun earlier but were continued by the Bush administration. The S&P ended down 40% during his eight years.
Barack Obama came to power under the fortuitous, for him, effects of the great recession. On election day, 2008, the S&P closed at 1005. By the day of his inauguration, it had fallen to 805. By the time the collapse had spent itself, on March 9, 2009, the S&P stood at 667. Then the markets began to retrace.
The S&P didn’t reach its previous high of 1562 until March 26, 2013, more than a year into Obama’s second term. Thus, Obama’s policies, or lack thereof, caused the great recession to last nearly six years, our longest economic downturn since the great depression. Yet, if I had to rate Obama by the increase in the S&P during his full term, he’d come out as second-best (after Clinton!), instead of the worst in my lifetime.
Finally, Trump. Given that he inherited the sclerotic economy of the Obama years, he’s turned things around pretty well. Employment across all classes is up, manufacturing is up, and, as CNN has reported, the S&P is up 25% (even after a downturn). But there’s more to the story.
The markets began to rise immediately after Trump was elected. On election day, the S&P stood at 2139. By the day of his inauguration, it had risen to 2271. Measured from the day the real Trump boom began, the S&P has risen 35%.
But we know (even CNN must know, surely) that a president’s legacy rests upon much more than stock prices. It also rests upon peace, tranquility, love of country, and respect for law and order. These things are the very opposite of what news organizations like CNN long for in their quest for headline-grabbing news. So we can count on them, especially during the rest of the Trump presidency, to continue to do their best to do their worst.