“Business is looking better than ever with business enthusiasm at record levels. Stock Market at an all-time high. That doesn’t just happen!”
That was one of President Trump’s early-morning Twitter posts late last week.
It was, all things considered, a factually accurate statement. Business is looking better. The stock market is at a high. And, yes, it did not happen by itself.
The question, however, is this: Has anything that has happened at 1600 Pennsylvania Avenue had anything to do with it?
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Putting aside the administration’s inability to successfully pass any meaningful legislation thus far — and that’s a lot to put aside — can Mr. Trump fairly take any credit for the market’s trajectory? After all, when I and others talk to C.E.O.s and investors, one constant refrain we hear is that they actually expect little to get done on the legislative front.
Where they repeatedly said they were expecting big changes — that will translate into higher profits — was in Mr. Trump’s pledge to lower regulatory burdens and costs, something that he could accomplish, in part, through executive orders and the appointment of regulators who are less inclined to enforce the rules aggressively.
Supporters of the president point to his emphatic stance against regulations that restrain businesses, as well as the dozens of executive orders he has signed that try to roll them back. According to my colleagues Julie Hirschfeld Davis and Michael D. Shear, he has “signed 13 bills to wipe out Obama-era regulations using the Congressional Review Act and ordered agency reviews of regulations across the government.”
Peter C. Kenny, chief market strategist for Global Markets Advisory Group and independent market strategist at Kenny & Company, wrote on Monday, “It appears as though the Trump administration’s focus on what it can control (i.e., rolling back Obama-era regulations) is effectively beginning to bear results in the form of economic resurgence.”
But that’s not right. Listen to the earnings conference calls of the biggest publicly traded companies over the past several weeks — which are the real reason the stock market has soared — and virtually none of those phone calls attributed higher profits to reduced costs to comply with regulations.
The only time the word “regulation” was even used on Apple’s earnings call — during which the company described how it beat analysts’ estimates by a wide margin — was in reference to China. The word did not get a mention on Amazon’s earnings call, nor was there any reference to Washington at all, despite constant chatter about how antitrust policy should be applied to the retailing behemoth.
Even on Goldman Sachs’s earnings call, which included several questions and answers related to regulations, not once did any official suggest that the firm’s earnings were a result of lighter regulatory burdens. Indeed, the bank warned several times that it was too early and too difficult to predict exactly how deregulation efforts would affect its various businesses.
Jamie Dimon, chief executive of JPMorgan Chase, famously was so upset on his conference call about the state of Washington and the inability to get anything done, he declared: “We have become one of the most bureaucratic, confusing, litigious societies on the planet.”
Of all America’s various industries, it is the Wall Street banks that should see the most benefit from deregulatory measures. Already, prosecutors have sought less in fines from the banks than they did under the Obama administration. And Mr. Trump has pledged to repeal — or at least reform — Dodd-Frank, the checks on the banking system imposed in the wake of the most recent financial crisis, but that would require legislation.
“The administration is, at a minimum, telling a one-sided story — it’s a bit disingenuous,” Charles Campbell, managing director at MKM Partners, said about Mr. Trump and his team’s taking credit for the rising stock market. “For the average American who is uninformed, it probably passes” as sounding correct, he lamented.
But Mr. Campbell said it was “a little early” for companies to see direct benefits from deregulation efforts. “This is the first full reporting period, quite honestly,” since Mr. Trump took office, he noted.
In industries like finance, Mr. Campbell said, stocks are trading with the expectation that there will be business-friendly changes in the regulatory environment. “It is the anticipation that there will be an effect,” he said.
It is very true that Mr. Trump’s deregulatory agenda should eventually make its way into the earnings reports of United States companies, but to suggest that it has already happened is a stretch.
The larger issue is, when it does happen, how much can deregulation really help juice the economy?
The answer will not satisfy those who have been clamoring for a change in policy.
According to Douglas Holtz-Eakin, a conservative economist who served in the George W. Bush administration and advised Senator John McCain’s 2008 presidential campaign, deregulatory efforts will not do nearly as much as some people assume.
He contends that the “Obama-era regulatory explosion imposed a cumulative $890 billion in additional compliance costs on the private sector.” And he adds, “Some have argued that getting rid of the regulations would raise gross domestic product by just exactly that: $890 billion.”
But here’s the rub: It isn’t that simple, in large part because a huge amount of that figure is a transfer in wealth to comply with the regulations. Mr. Holtz-Eakin estimates the real savings of deregulation are more like $225 billion.
“If gradually achieved over 10 years, that translates into an additional 0.1 percentage point in growth,” he writes. “While not exactly chump change, it highlights the difficulty in substantially moving the long-term rate of economic growth.”