Growth As In “America Great Again”

President-elect Donald Trump has told anyone who would listen he is a wildly successful business man and he will apply the principles which has propelled his wealth accumulation to problems and opportunities facing America. And, voila, America will be great again. Hmmm.

Trump the candidate often pointed to US “GDP” growth (around 2% per year) under President Obama as “pathetic”. Trump and his surrogates boasted that they would return growth to 4-6% range, if not higher. Is this a likely outcome one should reasonably expect?

Economic theory around growth gets complicated very quickly. One financial pundit recently boiled GDP growth down to two simple factors, population growth and productivity growth. This person predicted that the base case was likely to be 1% total GDP growth given a 1/2% population increase and a 1/2% productivity increase.

If this person was close to accurate, then for the US GDP growth to be higher, there would have to be a lot more workers added or some large stimulus to increase the output per existing worker, or both. At the present time no one is predicting new productivity tools similar to the impact computers and automation have had and no one is seeing the number of hours worked increase. So where would that 4-6% GDP growth come from?

The Trump economic brain trust claims that with less regulations and lower taxes, America businesses will invest more and as a result produce more goods and services. Hmmm.

And don’t forget the bi-partisan support for infrastructure repair and maintenance. This often characterized as a multi-trillion dollar, absolutely necessary, investment that only the government can finance. To be sure, infrastructure means more jobs and should be additive to GDP growth. But….

The combined lower taxes and the increased government infrastructure spending will drive federal deficits and increase the national debt dramatically. Sooner or later this increased debt will need to be paid back. And when paid back the reverse impact upon the economy (slowing productivity) should be expected.

Again the Trump team has the answer, the economy will be percolating so strongly with less regulations, lower taxes, and a stronger infrastructure that tax revenues will be sufficient to pay down the increased debt. Hmmm.

Looking around the world and judging the GDP growth of other countries puts President Obama’s 2% in a fairly good light. The Trump Administration’s 4-6% goal would put the US in a class by itself with a growth rate like China but growing without the predatory export segment. Hmmm.

Oh, and lastly, I wonder where the population growth rate comes out in Trump’s team’s mind? Making it harder for seasonal workers or undocumented workers living here now should run counter to GDP growth.

The most likely outcome will be a slight positive boost to GDP growth, say maybe to 2.5%.  Growth in excess of 3% will come with the prospect of a subsequent contraction back to 0.5% or so.  If GDP growth exceeds 4%, then a recession should be expected as the longer term reward.  (The silent hand won’t be so silent.)

With all this chatter about GDP growth, I wonder whether anyone will notice the “really big” tax reduction the wealthy received, the millions who will lose healthcare coverage, or that the new jobs “America Great Again” are mostly low pay and minimal or no benefits?

Explore posts in the same categories: Barack Obama, congress, Conservatives, Democratic Party, Donald Trump, economic growth, economy, federal debt, GOP, Healthcare, medicaid, medicare, Politics, Republican Party, Uncategorized

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