Soaring on the Trampoline

Obama's tweet, image found here

Earlier this week, former president Barack Obama celebrated the 11^th anniversary of signing of the “Recovery Act,” a piece of legislation that he claims resulted in our current booming economy. And he has rightly been scoffed for it. 

But it’s a good opportunity to exemplify the trampoline effect, so let’s do that.

The trampoline effect—a term invented by my son Political Sphere—is what happens when there’s interference in the economy. When government reaches in to “help,” it takes the energy out of the natural rebound. It’s like a trampoline, when the jumper is going up and down. After a normal down, the energy pops the jumper back up, at least as high as he’d been before. But if someone reaches in, touches the trampoline and says, “Here, let me help you” while “steadying” the bouncy mat or adding a push that’s out of sync with the jumper, the expected bounce doesn’t happen. Instead there’s kind of a thud, and then tiny bounces leaving the jumper sitting there needing to start over.

The economy is the jumper. There are ups and downs. But natural recoveries follow the downs, so they’re not something that needs fixing, or “help.” Left alone, a down recovers to an up pretty quickly.

When we were all on the trampoline together, "interfering" with each other,
there wasn't a lot of soaring. It was hard enough just to stay upright.
(Yes, the big kid on the trampoline is me.)

Economists might call the trampoline effect an L-shaped recession and recovery. Instead of the expected parabola (a U-shape), the down is followed by a sideways stutter. I’ve written about this here.

An L-shaped recession looks like this, instead of
the mirror-image parabola you'd expect.

In terms of the trampoline, when Obama said we would just have to get used to less growth and high unemployment, because that was the new norm, he was saying, “You’ve got to get used to less bounce in the trampoline; it’s just flatter now and doesn’t go up the way it used to. But imagine how bad it would be if we weren’t doing all the help we’re doing?”

Then Trump comes in and blows that theory away. “Get your hands off, and let’s see this thing fly again.”

One economic indicator is unemployment. This one has the L-shape upside down, since high unemployment is bad and low is good. You can see that the pre-recession low was 4.7 in November 2007. That level wasn’t seen again until November 2016, nine years later later (coincidentally coinciding with the end of the Obama presidency). Even that was somewhat distorted by people leaving the workforce because of chronic unemployment. So, even though there was some steady improvement following a high of 10.0 in October 2009, recovery to the beginning level was still 7 years away. A parabolic recovery (what happens naturally, without interference), should have been an approximate mirror image of the spike, which wouldn't have risen so high and could have recovered around June 2011. Obama's interference added on half a decade of additional pain.

F.R.E.D. unemployment data, found here

It wasn’t a chronic “new economy” to get used to; it was interference taking the energy out of the economy's natural ability to recover. Eventually, businesses and investors had to do what a trampoline jumper does: put some initial energy in again, and get a little going at a time, to try to overcome the interference. And the promise of less interference—lower taxes, less regulation—that accompanied the 2016 election campaign promises followed by policy changes led to economic soaring in the form of unemployment rates not seen in 50 years. And the newer unemployment numbers include hundreds of thousands of people returning to the workforce, which could have made unemployment numbers seem higher.

In other words, in Obama’s L-shaped recovery, unemployment was higher than statistics showed, and under Trump, unemployment is lower than statistics show.

We’ve seen this before. Remember the malaise speech by Jimmy Carter? We just have to get used to high unemployment, high inflation, and low economic growth, because that’s the new normal. But then Reagan came in and cut taxes. And then the economy took off again.

Back in 2011, 32 years after President Carter’s malaise speech, Laura Ingraham put together an audio montage of that speech and Obama’s, to emphasize the repetition. It’s as though they used the same speech writer. 

Why would we resign ourselves to malaise, when we know it’s the interference that’s causing it, and all we need to do is get government out of the way?

What did Obama do to interfere? He grew government, attempted a government takeover of entire sectors of the economy, such as healthcare—and, temporarily, the automotive industry. He raised taxes. He imposed regulations galore. He made planning difficult for businesses, whose plans could be swallowed up in a suddenly imposed new rule change.

He never saw a problem (often government-caused problems) that he didn’t want to "fix" with bigger government.

What did President Trump do to stop the interference? Nowhere near getting government totally out of its overreach habit. But what he has done so far is working:

·         Cut corporate taxes—down from highest rate in the world of 35% to a more middle-range 21%.

·         Cut tax rates for individuals and families (which could, however, expire in 2025).

·         Cut regulations. In his first year, regulatory activity decreased 74%.

o   Dodd-Frank rollbacks affected regional and community banks.

o   EPA regulations that harmed businesses were cut.

o   Departments of Education and Labor are doing some deregulating.

The Trump presidency brought a 74% drop in new regulations its first year.
Chart found here.

·        I saw a quote on Facebook today, along with a question about what we thought of it:

I submit that the government exists to provide for the needs of the people, and when it comes to choice between profits and property rights on the one hand and human welfare on the other, there should be no hesitation whatsoever in saying that we are going to place the human welfare consideration first and let property rights and financial interests fare as best they may.—J. S. Woodsworth

So I responded with the Spherical Model answer:

Government does not exist to provide the needs of the people. The proper role of government is to protect life, liberty, and property. Attempts to do anything else will result in unintended consequences, usually the exact opposite of the stated goal.

If our government would resist interfering to “provide for the needs of the people,” or any other intention beyond its proper role, we’d have a lot more soaring economy, and a lot less thud and malaise.

I’m in favor of soaring.