Give Steven Mnuchin a Break: Much Faster Growth Is Possible During the Trump Presidency

 

120116growth

I certainly get the skepticism — bordering on mockery — toward this statement from Steven Mnuchin, Donald Trump’s Treasury secretary pick, on CNBC yesterday: “Let me just say our most important priority is sustained economic growth, and I think we can absolutely get to sustained 3 to 4% GDP and that is absolutely critical for the country.”

In response, ace Washington Post columnist Catherine Rampell tweeted: “sustained 4% growth, guys! got a bridge to sell you, too.” Indeed, I offered plenty of snark during the GOP presidential primary season when Jeb Bush made hitting a 4% growth target a key campaign policy plank. This blog post, for instance: “Why Jeb’s 4% growth goal might require the Singularity.”

My point — and this is non-controversial — is that slowing labor force growth, due to demographics, means getting fast growth is a lot harder than it used to be. As economics blogger Bill McBride has put it, “2% GDP growth is the new 4%.” According to the Wall Street Journal, the last US president to achieve 4% growth or more over his term was Lyndon Johnson, with 5%, although Bill Clinton was close at 3.8%. Indeed, Clinton was the last to achieve even 3%, as the above chart shows. Forecasters like the CBO assume 2% growth at best as far as the eye can see.

Without much, much faster productivity growth — and official stats show it’s been especially weak since the Great Recession — the US economy will be stuck in a “new normal,”slow-growth mode, as this McKinsey chart illustrates:

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Given all that, I think sustained growth of 4% is more aspirational than actually achievable — maybe unless you assume productivity growth is currently higher than government figures suggest. But even so, something more like 3%-ish might just be doable. We should sure try. Who would argue current economic policy is optimal for growth? McKinsey recently outlined five policy areas where action, it argues, could “collectively raise GDP growth to 3 or even 3.5 percent” —levels not seen since the 1990s. From McKinsey:

mckinsey-11172016

One key here is that boosting growth requires a lot more than just a boffo tax reform package. It means a broad portfolio of policy actions. But boosting innovation-driven productivity gains and labor force participation should be paramount goals for policymakers.

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There are 8 comments.

  1. ctlaw Coolidge

    The debt makes that tough.

    At 4% growth, what would interest rates have to be in order to refinance the debt? What would the interest payments come out of?

    • #1
    • December 1, 2016, at 10:59 AM PDT
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  2. Sweezle Member

    I will definitely give Steven Mnuchin a chance to advance Trumps economic policy. Most of the media will continue to root for failure and be condescending. I hope your observations prove true and the debt and deficit issues don’t become worse as interest rates are allowed to go up.

    • #2
    • December 1, 2016, at 11:10 AM PDT
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  3. David Foster Member

    The McKinsey list is conspicuously missing anything about tax policy and regulatory reform.

    And exactly WHO do they think should ‘accelerate the digitization of lagging sectors and firms’?? Is this a call for some kind of massive government program?

    • #3
    • December 1, 2016, at 11:52 AM PDT
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  4. erazoner Coolidge

    Completely ignored is the effect of legislation passed by Congress during the presidential terms. Kennedy was benefited by a Congress largely in agreement with with his pro-growth proposals (during his very brief term).

    The president proposes, but Congress disposes.

    • #4
    • December 1, 2016, at 12:39 PM PDT
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  5. Viator Member

    I’m not sure any of those POTUS’ attempted what Trump is proposing.

    1. Large scale reshoring of industry.
    2. Repatriation of $2-3 trillion.
    3. Massive cuts in regulation.
    4. Large scale tax relief.
    5. Large scale infrastructure spending and development.
    6. All of the above energy development policy including importing and exporting.
    7. And some things not yet on the radar screen, e.g. infrastructure development bank.
    • #5
    • December 1, 2016, at 12:58 PM PDT
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  6. Mark Camp Member

    Below is my opinion on the subject, which is the opposite of much of the above.

    1. Prosperity depends on social order, and the confidence in its future maintenance.
    2. The President can contribute from social order, and thus to or from prosperity, by skillfully exercising his duties.
    3. The President can detract from social order, and thus from prosperity, by failing to do so.
    4. The President doesn’t determine prosperity.

    To think otherwise is dangerous falsehood.

    So, to show a chart indicating what increase in prosperity various Presidents “achieved” is dangerous falsehood.

    To list 7 proposals of a President, all of which are examples of a President violating his responsibilities, and claim that they will promote prosperity, is dangerous falsehood.

    • #6
    • December 1, 2016, at 3:25 PM PDT
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  7. Fake John/Jane Galt Thatcher

    Most people are forgetting one factor that Trump brings that Obama and Hillary did not. If Trump can bring forth the country’s animal spirits he may just get the economy he wants. Business thrives where it is loved and the US has not loved business for a while now. It might be that his business point of view might give business the lovin it so desires. Time will tell.

    • #7
    • December 1, 2016, at 4:56 PM PDT
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  8. Viator Member

    Mark Camp: To list 7 proposals of a President, all of which are examples of a President violating his responsibilities, and claim that they will promote prosperity, is dangerous falsehood.

    Dangerous falsehood, or not, it’s not much different from what every president since I was born, from FDR to Obama, have done. It’s just a lot more ambitious. I think the point is to Make America Great Again.

    • #8
    • December 2, 2016, at 3:17 AM PDT
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