The Trump administration this week unveiled its strategy for the economy and dubbed it “MAGAnomics.”
In the Wall Street Journal, Trump budget director Mick Mulvaney wrote that “the focus of MAGAnomics is simple: Grow the economy and with it the wealth of, and opportunity for, all Americans.”
The simple plan: Ratchet the economic growth rate up to a sustained 3 percent annually. That’s an ambitious target, given current levels of around 2 percent.
But there are a couple of problems. One is that sustained 3-percent growth is highly unlikely — and it’s not a simple proposition.
“I can’t see how it’s achievable,” said Joel Naroff, chairman of Naroff Economic Advisers, an economic consulting firm. “I never say never. Anything is possible. But the possibility of that happening is between slim and none.”
Another problem is that some Trump policies could in fact work against achieving that level of economic growth.
And a Congressional Budget Office analysis released the day after Mulvaney’s op-ed delivered a blow to “MAGAnomics,” estimating the Trump budget would fall well short of its economic growth goal.
The nonpartisan referee of all things money on Capitol Hill estimated that the Trump budget would only yield 1.9 percent economic growth on average over the next decade. That’s not only below the 3-percent goal, it’s also not much of an improvement — it’s just 0.1 percentage point higher than what growth would be under current law.
Experts say sustained 3-percent growth is unrealistic
It’s possible, of course, for the economy to get to 3 percent for a short while — tax cuts, for example, could bump growth up to that mark “for a few quarters, but not a few years.”
Indeed, GDP growth bounces up and down from quarter to quarter. In the third quarter of 2016, for example, it reached 3.5 percent. But the economy hasn’t held around or above 3 percent for an extended period of time since the booming 1990s.
And there are significant economic factors holding the U.S. back from that kind of growth. The Center for a Responsible Federal Budget illustrated this in a May report. In order to get to near 3-percent growth, major factors that contribute to growth would have to bounce back to the booming levels of a quarter century ago.
“By our estimates, returning capital growth, productivity growth, and prime-age labor force participation to where they were in the 1990s would result in 2.9-percent growth,” they wrote, adding that that’s “an unlikely scenario given recent trends.”
And top economists from both sides of the political spectrum have recently framed 3 percent as an unreasonably high aim.
“If we could move the U.S. from where it is now, which is say somewhere between 1.8 and 2 [percent GDP growth rate] to somewhere like 2.5, or God forbid 2.75,” said Doug Holtz-Eakin, former director of the CBO and president of the conservative American Action Forum, at a May panel discussion in Chicago. “If we did that, that’s hall-of-fame work. That’s hard.”
“Yeah. If you went from 2 to 2-and-a-half, that would be amazing,” concurred Austan Goolsbee, who chaired President Obama’s Council of Economic Advisers.
One big Trump policy area could undermine growth
The size of the labor force and productivity growth are the two big factors that dictate the size of the economy, according to Holtz-Eakin. And growth in the labor force — that is, growth in the pool of people working or looking for work — has slowed way down, largely due to an aging population.
Here is how the annual growth rate in the labor force looks over time:
“The only way to reverse that is to have a fundamental change in our immigration policies and generate more workers in the near term,” said Holtz-Eakin at that May event. “Without immigration, the U.S. is Japan: it shrinks and gets old.”
Boomers are aging out of the workforce; there’s no reversing that. And the birth rate has fallen off. So immigration could be key here. People oppose or promote immigration for a variety of reasons, including a view that immigrants take American jobs. But, actually, slashing the number of immigrants — in the country illegally or legally — would likely mean negative economic consequences for the U.S.
It’s true that Mulvaney proposes more work incentives — encouraging people back into the labor market via welfare reform. That could boost the labor force, but not by a lot, said one expert.
“So the slower economic growth that’s due to the labor force, about 80 percent of that is from the aging of the population,” said Maya McGuineas, president of the Committee for a Responsible Federal Budget. And once again: lower immigration levels, and you offset whatever you gain from doing welfare reform.
The other factor here is productivity — and economists aren’t totally sure why it’s so low. A few policies could potentially help — for example, the tax reform that Mulvaney proposes. But, McGuineas said, if it increased the debt, it’s possible it could also slow economic growth in the long run.
Not only that, but tax reform might only be a short-term shot in the arm, Naroff added. It may not deliver productivity growth that lasts.
One more policy area to consider is trade. The Trump administration pulled the U.S. out of the Trans-Pacific Partnership, one area that CRFB and some economists predicted would contribute to economic growth. Trump has talked about inserting the U.S. into what he believes would be “fair” trade deals. Depending on what the administration ends up doing on trade, that could also play a part in boosting (or hurting) U.S. growth.
“They” said it can’t be done
There’s something distinctly Trumpian about the administration’s economic plan (The MAGA in MAGAnomics derives its acronym from Trump’s Make America Great Again campaign slogan.)
Part of it is the fact that its main 3 percent goal seems unattainable. Trump proposed other similarly difficult-to-imagine policies during his campaign: deporting 11 million people in the U.S. illegally and promising to bring the federal debt to zero in eight years are examples.
Mulvaney acknowledges that many have called 3-percent growth unfeasible but shrugs it off with a kind of tough, rugged-individualistic attitude:
“For merely suggesting that we can get back to that level, the administration has been criticized as unrealistic. That’s fine with us. We heard the same pessimism 40 years ago, when the country was mired in ‘stagflation’ and ‘malaise.’ But Ronald Reagan dared to challenge that thinking and steered us to a boom that many people thought unachievable.”
The premise here seems to be that getting the economy to hit a certain level is in large part a function of having leaders who are independent-thinking enough to go their own way and really try. A failure of the economy here seems to be merely a failure of the imagination.
And, in fact, a slow economy may not be just a failure of policy but a kind of conspiracy, in Mulvaney’s telling — that there are unnamed, shadowy forces “who don’t want you to remember—what a great America means.”
This kind of “they said it couldn’t be done” thinking is a common theme for the Trump administration — it pops up every time the president gloats about how no one thought he could win the election.
Now, it has brought it over into the realm of economics. It makes the administration’s message coherent rhetorically, but it doesn’t mean that the economic policies will deliver.
Winning the Electoral College, it turns out, is a very different beast from growing the economy.
With reporting from Uri Berliner.