Finance: The War On Business Has Ended

 

(Drivebycuriosity) - Today is the first anniversary of the latest US presidential election. Since November 8, 2016 the S&P 500, the gauge of the  US stock market, gained 24%, about three times the annual average (driveby ). The Dow Jones jumped 28.5%, the "biggest post-Election Day rise since 1945" ( marketwatch). What happened?

The political climate in the US has changed. The war on business has ended. The new president and his administration are much more business friendly than their precursors. The Obama administration had raised the top tax rate of every major U.S. tax, except the corporate rate, which was already the highest in the developed world.

They imposed draconian regulation on health care, finance and most importantly energy, just when America was emerging with the resources for energy independence to lead the world in production of oil, natural gas and coal and they raised federal spending, deficits and debt to highest in American history by far (observer).

High taxes & regulation reduced the incentive to invest. As a result the US had the slowest recovery after the 2008 recession since World War II and the economy grew much slower than on average - just about 2% annually instead the usual 3-4%. The chart above shows that the Obama economy expanded slower than the trend and "relative to its previous trend, the US economy is more than $3 trillion smaller than it might have been had things played out this time as they have before" (scottgrannis).

Things are changing now. The Trump administration already stopped the rise of new regulation and started to roll back existing regulation (bloomberg weeklystandard). The new administration is also working on a tax reform with the aim to cut corporation tax rates. De-regulation & tax cuts will reduce financial burdens and so encourage companies to invest and to hire more people which will foster economic growth. The expected tax cuts should also accelerate the growth of company profits, the engine of the stock market, in the coming years.