"The Mandarin Class thought Trump wrong. The Economy proved him right. Explain."

This article reminds me of a talking heads pundit point circa 1980. The Carter administration was puttering out, taken down by inept economic policies badly implemented and a difficult international environment for which the administration had little or no interest in addressing and yet which kept creating humiliating fiascoes for the president.

In that context, there was "bold" talk in pundit land that perhaps the nation had simply become too complex, and, accepting that premise, perhaps we needed two presidents, one to focus on the domestic and one on the international. It was just so much talk with no real intelligence behind it. But for college students in the School of Foreign Service at a major university in Washington, it was a point well worth discussing at length because it seemed so daring, so germane, so sensible. Only with hindsight and some modicum of maturity did I later look back with embarrassment on our strutting and pontificating about things which we rarely meaningfully understood.

I think one value of a university education is to lay the groundwork for genuine humility.

Even later, as I began to pay marginally more attention to politics than to policy, did I notice that the two presidents argument really sounded like excuse-making. "It's not that our guy isn't up to snuff. Its that the job is too complex and needs to be handled by two."

Thoughts and recollections brought to mind by The Economy That Wasn’t Supposed to Happen: Booming Jobs, Low Inflation, Maybe using data from a few decades in the middle of the 20th century to set policy in the 21st isn’t such a good idea. by Neil Irwin.

The implied argument is that economic forecasters were off and it is because they used old data. Well. . . plausible. But is that really what happened?

The labor market the United States is experiencing right now wasn’t supposed to be possible.

Not that long ago, the overwhelming consensus among economists would have been that you couldn’t have a 3.6 percent unemployment rate without also seeing the rate of job creation slowing (where are new workers going to come from with so few out of work, after all?) and having an inflation surge (a worker shortage should mean employers bidding up wages, right?).

And yet that is what has happened, with the April employment numbers putting an exclamation point on the trend. The jobless rate receded to its lowest level in five decades. Employers also added 263,000 jobs; the job creation estimates of previous months were revised up; and average hourly earnings continued to rise at a steady rate — up 3.2 percent over the last year.

Compare that reality with the projections the Federal Reserve published just three years ago. In mid-2016, Fed officials thought that the long-run rate of unemployment would be around 4.8 percent, and that this would coincide with 2 percent inflation.

If that were the jobless rate today, 1.9 million Americans would not be working who are instead gainfully employed. And despite this ultralow unemployment rate, inflation is only 1.6 percent over the last year, below the level the Fed aims for.

Lets bring that scattered data into adjacency for the sake of easier comparisons - The mainstream economists missed their forecasts by 25-30%.

Actual Unemployment rate - 3.6%
Forecast Unemployment rate - 4.8%

Actual Inflation rate - 1.6%
Forecast Inflation rate - 2.0%

Not mentioned in the article but worth considering as well would have been what the economy meant in terms of wage increases. In the prior administration there was a pervading sense that wage increases were going to be stagnant for a long time owing to international competition and to automation. It was held then that we were in for a long period of wage stagnation yet now they are beginning to inch up.

The economy is growing faster, more people are working, unemployment is down, inflation is flat and wages are finally beginning to grow.

Not because of the highly sophisticated and targeted policies of the prior administration, policies which mixed economic goals with economic justice goals and redistributive goals and equity goals. No, it is growing because of a return to the old classical growth model.

The current administration has pretty much followed the Adam Smith playbook for a healthy economy- Peace, low taxes, good laws.

So what has happened after 18 months of the Adam Smith plan. The originally forecasted gloom and stagnation?

Not that long ago, the overwhelming consensus among economists would have been that you couldn’t have a 3.6 percent unemployment rate without also seeing the rate of job creation slowing (where are new workers going to come from with so few out of work, after all?) and having an inflation surge (a worker shortage should mean employers bidding up wages, right?).

And yet that is what has happened, with the April employment numbers putting an exclamation point on the trend. The jobless rate receded to its lowest level in five decades. Employers also added 263,000 jobs; the job creation estimates of previous months were revised up; and average hourly earnings continued to rise at a steady rate — up 3.2 percent over the last year.
[snip]

After more than two years of the Trump administration, warnings that trade wars and erratic management style would throw the economy off course have proved wrong so far, and tax cuts and deregulation are most likely part of the reason for the strong growth rates in 2018 and the beginning of 2019 (though most forecasts envision a slowing in the coming quarters as the impact of tax cuts fades).

In particular, it now appears that recession fears that emerged at the end of 2018 were misguided — especially once the Fed backed off its campaign of rate increases at the start of 2019.

Score one for Smith.

Irwin is documenting that the received opinion of the Mandarin Class economists was soundly repudiated by market reality. The argument goes beyond what happened. We can all see what happened. Why did it happen is the more interesting question.

And Irwin apparently doesn't really want to grapple with that. I speculate it would be too embarrassing for a Mandarin Class pundit to demonstrate that a New York property developer knew more about managing the national economy than all the credentialed scholars of the Mandarin Class.

But nothing in Irwin's word salad explanation is especially significant.

The trend line of the world becoming more peaceful, healthier, logistically integrated, productive, technologically sophisticated, etc. is nothing new. There have been no discontinuities in these trend lines that would explain why the economy is doing so well under the current administration when it was anemic under the last.

Even deficit spending isn't really the root cause, much as I abhor deficit spending. The trend line of financial incontinence is another consistent one with no real breaks.

The concluding paragraph is about the dampest of damp squibs.

The continued boom in the American job market suggests that economic policymakers need to be open-minded about when the old relationships and rules of thumb no longer apply.

Well, yes. If your forecasts are always wrong, maybe you need to reconsider your assumptions.

Everyone assumed Adam Smith was no longer relevant. The current administration is proving that he remains as pertinent as ever.

A provocative alternate headline might be "The Mandarin Class thought Trump wrong. The Economy proved him right. Explain."

No excuse making for why the pundits were wrong. Demonstrate how they are revising their assumptions. Show your work.

Trump might just be lucky. Some presidents are. The underlying issue is not necessarily Trump's success but why the experts are always wrong. Not only is the Trump economy outperforming all expectations but we have to remember the long sequence of summers in the Obama administration where there were cyclical predictions of a "Recovery Summer" which never occurred. The Mandarin Class expert's forecast are, interestingly, nearly 100% either Type 1 or Type II errors.