The U.S. economy’s steady growth — the longest stretch since World War II without a recession — is something of a mystery. Last summer, the yield curve inverted, which traditionally is the most reliable signal of an impending downturn. There were all sorts of plausible reasons the economy could take a turn for the worse -- a mountain of increasingly risky corporate debt, a slowdown in China, President Donald Trump’s trade war, manufacturing weakness, increasing uncertainty about government policy and so on.

Yet no recession has appeared. Gross domestic product growth has been remarkably steady at a little more than 2% — probably the best, on average, that can be hoped for given the aging population and the global productivity slowdown.

And the labor market is stronger than at any time except the late 1990s, with workers at the bottom of the income scale getting real wage increases.

Why is the economy doing well despite all the headwinds? Trump supporters will tend to credit the president’s late 2017 tax reform. But this is unlikely. If the Tax Cuts and Jobs Act had made the economy more efficient, it would be have led to a surge of business investment. But economics research finds little impact, and real private investment actually decreased in the second through fourth quarters of 2019.

It’s also possible, of course, that the tax cut has raised consumption by driving up aggregate demand. Paul Krugman has put this forward as an explanation. It’s also true that under Trump, deficits have risen to levels not seen since 2012.

But this is unlikely to have provided the economy with a major boost. First, the tax reform’s benefits flowed mostly to the wealthy. Wealthier people tend not to change their consumption much in response to changes in income, because unlike poor and middle-class people they have no pressing need to pay off their debts or buy necessities. Fiscal stimulus also tends to have much less of an effect when the economy is healthy than when it’s in recession. Thus, the tax cuts probably provided little stimulus while raising the deficit.

So if it wasn’t the tax reform, what’s keeping the recovery rolling along?

Low interest rates haven’t yet sparked a consumer borrowing boom; the ratio of household debt to gross domestic product remains at low levels and shows no signs of rising.

Trump might assert that his trade war helped. But exports didn’t go up during the past year. And if U.S. consumers are shifting from imported goods to domestically produced ones, the shift is very minor.

The recent weakness in business investment, especially in manufacturing, also suggests that the U.S. is not benefiting from a wave of reshoring by multinational companies. Chinese labor costs have risen, and China has become a less attractive investment destination because of the trade war and Chinese government policies. But so far, companies are mostly just shifting their overseas production to other low-cost countries like Vietnam rather than bringing it back to the U.S.

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