Despite Trump's rancor for the global system, the world economy is surging
WASHINGTON -- A year ago, with the election of a U.S. president who had fulminated against the international trade and financial systems, some analysts worried that the engine of global prosperity might soon be sputtering. But that's not what happened.
The global economy has surged forward this year, significantly outperforming expectations. As the International Monetary Fund wrote in its latest world economic outlook, published in October: "The current upswing reaches more broadly than any in a decade -- roughly 75 percent of the world economy ... is sharing in the acceleration."
The IMF revised upward its forecast for the global economy, predicting 3.6 percent growth this year and 3.7 percent in 2018, powered by surging activity in Europe, Japan, China and America. The U.S. will grow more slowly, at 2.2 percent this year and 2.3 percent in 2018, but that's better than 2016's anemic 1.5 percent.
Goldman Sachs' forecasters are even more bullish. A November report, titled "As Good as It Gets," offered this tonic for investors: "For the first time since 2010, the world economy is outperforming most predictions, and we expect this strength to continue." Goldman projects 3.7 percent global growth this year and 4.0 in 2018.
So why, you might ask, does the U.S. need a tax cut amid this global surge? Good question. Many economists warn that by ballooning the deficit and creating an artificial "sugar high" in the U.S. economy, the tax-cut legislation passed by the House and Senate would add little to U.S. long-term growth and could actually make it worse.
But let's stick with the mystery that's lurking in the upbeat numbers: Did this year's good economic news happen because of Donald Trump's presidency, or despite it?
Trump's daily circus of anti-elitism during 2017 certainly looked like an attack on the global system: He scuttled the Trans-Pacific Partnership, threatened NAFTA and bad-mouthed trading partners Germany, Japan, South Korea and China. Yet global markets rolled forward, as if oblivious to the man in the White House who, figuratively speaking, was wielding a sledgehammer.
Trump boosters would argue that he reinforced global economic confidence, despite his political antics. And it's certainly possible that financial markets were steadied, not disrupted, by the self-described billionaire who was ready to make deals to enhance the U.S. position in the global economy.
The reality is that financial markets are driven by investor psychology -- the raw, instinctive confidence that it's time to buy and invest. This was the central insight of economist John Maynard Keynes. In one of the most-quoted passages of his 1936 "General Theory," Keynes argued that positive economic decisions "can only be taken as a result of animal spirits -- of a spontaneous urge to action rather than inaction."
Animal spirits are certainly roaring overseas. China inspires confidence as it shifts to a slightly slower but more sustainable pace. Emerging economies, generally, are thriving: Goldman forecasts that India will grow 8 percent next year, 1.5 points faster than China, and that emerging markets as a group will grow at 5.6 percent.