The Daily - Monday, Feb. 5, 2018

Episode Date: February 5, 2018

President Trump has claimed credit for a booming U.S. economy. But is it actually booming, and to what extent is he responsible? Guest: Peter S. Goodman, who writes about the economy for The New York Times.For more information on today’s episode, visit nytimes.com/thedaily.

From The New York Times, I'm Michael Barbaro. This is The Daily. Today, the president is claiming credit for a booming economy. But is the economy actually booming? And if it is, does he get any credit for it? he get any credit for it? It's Monday, February 5th. added more than $8 trillion in new wealth. The stock market is hitting one all-time record after another. There's no question that since Donald Trump became president, the American stock markets have been seized by a kind of euphoria. Today again, the stock market has reached another record all-time high. It's at a new high right now. Gaining $8 trillion and more.

And continues to go up, up, up. We want to keep it going. The economy is so strong now and so good. The economy is doing really great. The economy is going really well and going to get even a lot better. But the stock market is not the real economy. Peter Goodman reports on the economy for The Times. The real economy is the totality of all the stuff that we buy, sell, and produce.

That's a much more important barometer of overall economic health for most people. more important barometer of overall economic health for most people. Do we have enough jobs? Are we at full employment? What kind of jobs? Are wages growing up? How do people feel? Do they feel secure or insecure? And if we look at the economy that way, it's really a mixed bag. But to understand where we are now, you really have to understand where we were. We're down by between 3% and 4.5% generally across these markets. Let's talk about the speed with which we are watching this market deteriorate. The stock market is now down 21%. We're now down 43%.

It started in late 2007. Housing prices had been declining. And as it became clear that, in fact, housing values were wildly inflated and a lot of people weren't going to be able to pay back their mortgages, fear spread throughout the economy, and it was crippling. Traders here working the phone say a lot of their customers are freaked out waiting to see how low the Dow will go. They're focused on the Dow, not so focused on the...

Banks stopped lending, people stopped spending, businesses saw their revenues decrease and they started laying people off and so it spread. The Americans for first time probably since the Depression, lost confidence first in their country's economy, then in their country's institutions, and finally now in the country's currency. And the economy grounds to a halt. The U.S. government delivers a massive, unabashed intervention into the marketplace

to try to give people confidence. I propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending. The first thing that happens is the George W. Bush administration delivers a massive bank bailout that eases the worst fears that we're going to have a replay of the Great Depression. The American Recovery and Reinvestment Act that I will sign today. Obama comes into office, continues that bank bailout, augments it.

Is the most sweeping economic recovery package in our history. But the big thing that happened was the Federal Reserve stepped in in a really big way. With no silver bullet for the economy, the Fed fired a shotgun blast. In slashing its benchmark interest rate to the lowest level ever, the Fed said rates were likely to remain at exceptionally low levels for some time. And so the Federal Reserve drops interest rates close to zero and starts buying up a whole bunch of assets to make money and credit widely available through the economy. So the Fed was trying to re-inspire people to have confidence in the economy again by saying, borrow money. It's basically free. Yes, essentially. We'll take care of the credit. You carry on with the hiring and the spending and the investing.

And so they took the edge off the worst fears and eventually it worked. It is a sign that Americans have some new confidence in their economy again. They're spending at a record pace this year. Americans' confidence in the economy rose this month to its highest level since September of 2008. People start edging back into the market. For the first time in two years, Americans are charging more on their credit cards. People who were, you know, having to make do with a car that was really too old are thinking, okay, now let's go buy a car. Economists say that's a sign some Americans are becoming more confident about the economy and their jobs. By early 2010, it's clear that the worst is over.

Some improvement is underway. Over the past year, the stock market has boomed by nearly 60%. If you're a 401k, you're saving money. We gained a million jobs in 2010 net. By 2011, we gained 2 million net jobs. And that pace pretty much continues and then increases. By 2014, we're gaining 2.8 million jobs, 2.5 million jobs in 2015. You know, by the time Obama leaves office, the unemployment rate is down to

4.8 percent, down from 10 percent early in his presidency. It's going to take some time to get back to where we need to be. But I have confidence in the American worker. I have confidence in you. I have confidence in this economy. We are coming back. Thank you, everybody. Thank you. God bless you. And God bless the United States of America. Ladies and gentlemen, welcome to the inauguration of the 45th president of the United States of America. When Donald Trump takes office, how does he characterize this economy? Trump talks about the economy as if it is moribund.

We must honestly acknowledge the circumstances we inherited. Ninety four million Americans are out of the labor force. Over 43 million people are now living in poverty and over 43 million Americans are on food stamps. More than one in five people in their prime working years are not working. It's an economy in which paychecks are shrinking, jobs are under assault from places like China and Mexico. To accomplish our goals at home and abroad, we must restart the engine of the American economy. He doesn't credit the Obama administration or the Bush administration for the growth that at that point has been underway for seven, eight years.

He speaks to people who have not gotten the benefits of that growth. So a year ago, the president is focused on the ways in which the economy has left entire segments of the country behind. And now, just a year into his presidency, he is portraying a very different picture of the economy. Our nation has lost its wealth, but we're getting it back so fast. The era of economic surrender is totally over. From now on, we expect trading relationships... He's pivoted from using the worst-off parts of the American economy

to now describe an economy in which seemingly everything is wonderful. The stock market has smashed one record after another, gaining $8 trillion and more in value in just this short period of time. The problems of underemployment, of low wages, of economic insecurity have magically disappeared in the space of a year. Unemployment claims have hit a 45-year low, and something I'm very proud of. African-American unemployment stands at the lowest rate ever recorded. And oh, by the way, all of that accrues to his leadership.

When it comes to the things that are significant markers within the real economy, what are wages doing? How many quality jobs are there? It's very difficult for Donald Trump to take much credit. He's only been the president for a year. We're into the ninth year of an expansion. And in fact, here's a measure that might be useful. I mean, since the 2016 election, the economy has been adding about 170,000 jobs more or less a month. the economy's been adding about 170,000 jobs more or less a month. That's pretty good, but we saw 185,000 jobs a month added over the previous seven years. So there has, in fact, been a slowdown in job creation in the year since Trump came in. So what you're saying is that under Trump, a huge number of jobs have been added every month,

that under Trump, a huge number of jobs have been added every month, but that actually under his predecessor for the last seven years, even more jobs were added every month than have been added under Trump. Yeah, that's right. This expansion was underway a long time before Donald Trump showed up in the Oval Office, and it was set in motion by a lot of people who had nothing to do with Donald Trump. But what he can take credit for is the raging stock market. All right, I'm going to jump in. Fox News alert. We want to look at the Dow Jones Industrial Average right now. We are literally two points away from hitting that 20,000 mark. This is,

by the way, a fresh record. For the first time ever, the Dow opened above 20,000. NASDAQ and S&P also at record highs. I mean, under Trump, a stock market record is an achievement with a very limited shelf life. Well, this week, the Dow Jones Industrial Average closed above 21,000, just four weeks after hitting 20,000 for the first time. The stock market hit an all-time record high today, over 22,000.

It's going to go higher, too. Look at that number, the Dow Jones, over 25,000. That is why we have... This is a boom, no question. I mean, people are coming home and opening their 401k statements and finding themselves amazed at how much more money they got in the bank than they did before. ...have rallied since President Trump took office. It's been an unbelievable run. Today, he said this is only the beginning.

My recollection is that the stock market started to go up pretty much the minute Trump was elected. And I wonder if you can explain how a single person can so quickly affect the stock market. Well, finance is an insular club. There are a handful of asset managers who control trillions of dollars of wealth and who, from their desks, can decide where all that money goes. And so when Donald Trump goes to the World Economic Forum in Davos and he says to these masters of finance, the U.S. is open for business. We welcome your investment. He is speaking to this select group of people whose sentiments have outsized influence over where money flows. And those people can vote with their dollars, and there becomes this self-perpetuating cycle, this kind of feedback loop where,

you know, they buy, the market goes up. We all see that the market's setting new records. Retail investors are more inclined to get in on some of the action if for no other reason that they don't want to miss out. And the market keeps going up. So by encouraging that small group of people that they should have confidence in the U.S. economy under Trump, despite the economy not really changing all that much, this small group can have a huge impact on the stock market. Oh, very much so. Financial institutions have outsized influence over stock prices, and people who run financial institutions have directly, personally benefited from the policies of the Trump administration. He's stripped away a bunch of regulations,

and he just delivered a delicious, generous tax cut, giving Wall Street a sense that the party is back on. So we've been talking a fair amount about how confidence plays a role in both the real economy and the stock market. But it seems like the question is, whose confidence? That in the aftermath of the recession, it took a lot of regular Americans getting confidence back for the economy to turn around. But in this moment, we're seeing that the stock market can boom based on the confidence of a fairly small group, in this case, a small group of wealthy people. Yeah, that's right. There have been plenty of times in history when the stock market has done well while the real economy has not done so well.

The stock market has done well while the real economy has not done so well. To have the real economy function in a way that's healthy and beneficial for larger numbers of people, consumers have to feel emboldened to go out and spend. And not just emboldened, they have to have the money to spend. And to get the money, paychecks have to go up. And they have to go up in a real and sustained way. And that's a very different dynamic than the dynamic that's now making stock prices hit records day after day. Peter, is there any danger in this small group of people driving the stock market into this frothy boom in the way that it has? Danger for whom? Anybody. Them, the people in the real economy,

both. I mean, there's danger for Donald Trump because he's very consciously affixed his reputation, the success of his presidency to this raging stock market. He is intentionally conflating the real economy with the stock market. And right now, that's a good place to be because the stock market is going up. We'll see how that bet looks when, as is inevitable, the stock market at some point adjusts. And already we know that the Federal Reserve is looking out for signs of inflation. It's steady as she goes at America's central bank. Officials here are determined to stay the course of slowly but steadily raising interest rates. The Fed famously views its role as taking away the punch bowl when the party's getting started.

Fed Chair Janet Yellen explained that with the world's largest economy improving, this and further rate rises are needed to head off inflation. The Fed is looking for an opportunity to normalize interest rates for two reasons. One is when the next recession comes, and no one knows when that will be, but it will happen just as sure as the sun rises and falls. When the next recession comes, the Fed will want the ability to lower interest rates because that's what the Fed does, like they did during the Great Recession, to provoke more economic activity. And right now, interest rates are still so low that the Fed doesn't have much room to drop rates. So they want to lift them. We continue to expect that the ongoing strength of the economy will warrant gradual increases in

the federal funds rate to sustain a healthy labor market and stabilize inflation around our 2% longer run objective. The more the economy grows, the more the stock market climbs, the more there's a sense of euphoria in the world of stocks, the more inclined the Fed will be to go a little faster to lift rates. And once they do that, that could, you know, just as taking away the punch bowl when the party's getting started implies, that could cool some know, just as taking away the punch bowl when the party's getting started implies, that could cool some of the activity in the stock market. And of course, President Trump is trying to spike the punch bowl as he talks up the stock market in the hopes that that will deliver economic growth. The fear is that that will prompt the Fed to move faster

to lift rates. And the effect of that could be to end the party in the stock market. Another risk is that the president has tied himself too closely, his administration, his presidency, in a sense, to the success of the stock market. Markets go down as well as up. When they go up, it feels pretty good, looks rosy, but they do go down. looks rosy, but they do go down. And I mean, most presidents are pretty careful that they not tie themselves too closely to that sort of volatility. Thank you, Peter. Thank you, Michael. On Friday, stocks tumbled by more than 2%, propelling the market to its worst week in two years.

We'll be right back. Here's what else you need to know today. Congressman Stewart, does the GOP memo vindicate the president? Does it end the need for the special prosecutor's investigation? No, it doesn't end that need at all. I think it would be a mistake for anyone to suggest that the special counsel shouldn't complete his work. I support his work. I want him to finish it. I hope he finishes it as quickly as possible. On Sunday, several Republicans on the House Intelligence Committee

tried to distance themselves from President Trump's claims that the classified memo the committee released on Friday, quote, totally vindicates Trump from special counsel Robert Mueller's investigation. The memo accuses the FBI and the Justice Department of abusing their powers in spying on a Trump campaign official with ties to Russia. This memo has, frankly, nothing at all to do with the special counsel. It was one of the criticisms of people last week and before that who had never seen the memo, who said, you know, this is to impugn the integrity and the work of the special counsel.

As you know now, Chris, it has nothing at all to do with that. They're very separate. Democrats have denounced the memo as an effort to undermine the Mueller investigation and protect Trump, and have prepared their own classified rebuttal memo. Last week, Republicans voted against releasing the Democratic memo, but now several Republicans, including House Speaker Paul Ryan, have indicated they are in favor of releasing it, and the House Intelligence Committee is expected to vote on it today. As with the Republican memo, the president would then have to approve its release to the public, something the White House says he's willing to do. I think the president would be inclined to release the Democratic memo should it come to us and

should it be reviewed and gone through the same process. And if national security and legal equities review it and say it doesn't challenge sources and methods and the information, then it'd be accurate. And a Times investigation has found that during the more than one year period when the FBI was looking into alleged sexual abuse by Dr. Larry Nassar, but had yet to charge him, the agency failed to warn the young female gymnast he was treating. During that time, at least 40 women say Nassar molested them, abuses that might have been avoided had the FBI warned them of his alleged behavior. In a statement to The Times, the FBI declined to explain why its investigation took so long, or why it failed to notify Nassar's patients of its suspicions.

That's it for The Daily. I'm Michael Barbaro. See you tomorrow.