The ‘Truth Effect’

Ceterum Censeo Carthaginem esse delendam!

Although a rallying cry to destroy Carthage seems irrelevant to a modern audience, the methodology behind its reasoning has rung true for millennia. Roman statesman, Cato, closed every one of his speeches with the rallying cry, knowing that the slogan’s repetition would breed agreement. Another great statesman, Napoleon, agreed with the sentiment, reportedly commenting that “there is only one figure in rhetoric of serious importance, namely, repetition”, whereby if a declaration is repeated enough times, it fixes itself within the mind “in such a way that it is accepted in the end as a demonstrated truth.”

The ‘Truth Effect’, as it has now been branded by scientists, has in recent years been demonstrated to be particularly valid in the field of politics. With the US midterms fast approaching, it is little wonder that Donald Trump has chosen to focus on one of the biggest success stories of his administration so far, rapid economic growth.

As with most of Donald Trump’s correspondence, it started with a tweet: “We have the strongest economy in the history of our nation.”, claimed the president in June; “We have the greatest economy in the history of our country.”, followed just a few weeks later. The theme continued throughout the summer, with president Trump continually claiming the economy to be the greatest, the best and strongest in US history. In the three months that followed, the US president had uttered some variation of the phrase at least 40 times, an average of about once every two days. In some cases, such as a rally in West Virginia, he repeated the statement as much as four separate times. In fact, the US economy was lauded so much by Mr Trump, he even started quoting himself: “It’s said now that our economy is the strongest it’s ever been in the history of our country.” One could dismiss his claims as bravado or rhetoric due to his penchant for exaggeration, but does there come a point where it is said so often, the declaration becomes its own form of truth?

Whilst it is true that the US economy has been a continued bright spot over the years in what has been a stuttering global recovery, is it strongest it’s ever been? There is little argument that the US economy has gone from strength to strength since it pulled out recession in 2009. There is also some truth to president Trump’s words, the US economy is now at its strongest, however, only if you look at the level of economic activity, not the rate of acceleration. GDP adjusted for inflation is sitting at record highs. However, this is not surprising; over time workers become more productive in part to improving technology and infrastructure. By this metric, all presidents since 1947 have been able to accurately claim that the economy they have presided over has been the greatest it has ever been.

Employment is a major indicator of economic health, and it true that Mr Trump’s tenure has overseen a massive drop in those out of work. A level of 3.7% is impressive and the lowest for 18 years, but unemployment has been lower at various points during the 20th century, the lowest reading coming in at 2.5% in 1953. We must also note that wages were rising a lot quicker in the 1960s and late 1990s when the unemployment rate was similar to now.

Gross Domestic Product (GDP) Growth is another statistic the US president likes to cite when highlighting the strength of the economy. In another tweet during September Mr Trump proclaimed, ““President Trump would need a magic wand to get to 4% GDP,”” stated President Obama. I guess I have a magic wand, 4.2%.” There is no proof that Obama ever said this but more interestingly, during the previous president’s term, GDP exceeded 4.2% on three separate occasions (5.1%,4.9% and 4.7%). If we go back further, GDP ranged from 4.4% in 1962 to 6.6% in 1966.

In fact, the general theme seems to be that although the US economy is doing well, the trend is really only an extrapolation of the previous administration’s work. Although employment sits at impressive levels today, September saw the 95th straight month of jobs added to the US economy, with such impressive data straddling more of Mr Obama’s tenure than Donald Trump’s. It must also be noted that when Barack Obama came into office in 2009, the global economy was in meltdown, with the US in deep recession, enduring high levels of employment and increased government borrowing. Although many argue the US recovery was weak, compared to the Eurozone, the world’s largest economy performed relatively well.

Back in 2009, shortly after coming into office, Mr Obama passed the American Recovery and Reinvestment Act, pumping $831 billion into the economy by way of new tax cuts, unemployment benefits and infrastructure spending. Although its introduction coincided with a global recovery, the OECD credits the reforms with faster growth in the US than the rest of the developed world.

Trump can certainly brag about the strength of his nation’s economy and to some extent, it is the envy of the rest of world. However, by attempting to take his place in history, by just about every economic measure, Donald Trump certainly falls short, falling behind other presidents in the queue who oversaw even stronger growth, such as Eisenhower, Johnson and Clinton. They do say history repeats itself, however, so the current president should be just fine.


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This article is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Any opinions expressed in the Investment newsletter are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.


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