Economic Growth?

President Trump has made a concerted effort to trash the current US economy’s status. Specifically, the President has criticized the economic growth rate (which is someplace between 1.5-1.9%). President Trump has promised growth ranging instead from 3-4% with millions of new great jobs. This type of growth, the White House says, would allow huge tax cuts, military buildup, and put back to work energy sector workers. Pretty clear vision?

Maybe. Let’s consider the likelihood of achieving this aspirations.

World economic growth weighs in at about 2.7%. If you look at World Bank figures, one sees developed countries fall in around the US, about 1.7%, while developing countries, using borrowings and foreign investments, present faster growth figures, greater than 4%. This begs the question, what could the US do differently and suddenly grow faster than the globally connected world.

The Trump White House, with its Congressional Republican fellow travelers, claim tax cuts are the key. The theory goes that with more money in citizens’ pockets, Americans will spend more. Spending more will boost GDP.

This sounds encouraging, unfortunately two hurdles lie in the path to greater growth.

  1. Past experience with tax cuts has revealed that most of the gains flow to the very rich (and they do no spend the money), and
  2. Unless the tax cuts are offset spending reductions, the tax cuts act like a loan which in time must be paid back slowing the economy at that time.

The most likely outcome around tax cuts is that there will be little economic stimulation because the rich do not spend, AND, the government reduced spending necessary to offset the tax cuts, takes money out of the economy slowing growth, and potentially reducing growth below current levels.

Bringing jobs home and employing methods to make trade balances more US favorable have also been mentioned as tools to boost economic growth. Traditionally if the US makes a better mouse trap and the world flocks to buy these mouse traps, there is a reasonable chance to increase economic growth. On the other hand, bringing jobs back to the US unless the manufactured goods suddenly cost less will most likely slow the economy because goods and service would cost more.

Even worse, the prospect of using tariffs, border taxes, or any other intervention to boost economic growth is ready made for generating unfavorable unintended consequences. Hmmm.

Politically it is unlikely that President Trump would say 1.5-2% GDP growth is the best American can expect. Challenging the country to do better is a proper role for the chief executive.

Claiming, however, that 3-4+% growth is around the corner is irresponsible, especially if the policies President Trump has already proposed are used.

The economy is complex and interconnected with the world economy. Suggesting the US can withdraw from the world community, act somewhat self sufficient, presents a fast track to a slow growing (if not worse), high cost of living society.

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