Rapidly Boosting Growth in Rich Economies Like America’s Is Pretty Tough

 

Like most economic forecasters, the International Monetary Fund never saw Trumponomics as capable of delivering superfast growth ASAP. So now that massive tax cuts and infrastructure spending are looking more unlikely, the IMF is only modestly reducing its near-term outlook. As the Financial Times notes:

Following slow progress by the White House and Capitol Hill on long-mooted tax reforms, the fund on Tuesday lowered its prediction for gross domestic product growth this year to 2.1 percent, down from an earlier forecast of 2.3 percent. The fund reduced its growth outlook for 2018 to 2.1 per cent from 2.5 percent.

What I found particularly interesting in the IMF report was its brief explanation (reflected in the above chart) about the difficulty of sharply raising GDP growth in an advanced economy like America’s:

The U.S. is effectively at full employment. For policy changes to be successful in achieving sustained, higher growth they would need to raise the U.S. potential growth path. The international experience and U.S. history would suggest that a sustained acceleration in annual growth of more than 1 percentage points, as projected by the administration, is unlikely. Indeed, since the 1980s there are only a few identified cases among the advanced economies where this has happened. These episodes mostly took place in the mid to late 1990s against a backdrop of strong global demand and many of them were associated with recoveries from recessions. The U.S. itself experienced one comparable growth acceleration as it recovered from the deep recession of the early 1980s. However, this event occurred during a period of favorable demographics, rising labor force participation, a significant expansion of the federal fiscal deficit, and an acceleration in trading partner growth. These tailwinds are unlikely to recur today.

A tough task, perhaps, but maybe not impossible.

Published in Economics
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  1. I Walton Member
    I Walton
    @IWalton

    Never leave home without your IMF forecast.  All those Keynesians couldn’t be wrong.  And since one of the most complex systems within our field of knowledge can be reduced to  simple capital output ratio and since all those workers who are  not unemployed because they can’t find work, or don’t want work, or get enough from crime and welfare or disability or aren’t employable because of our educational system and can’t get on the job training because they aren’t worth a minimum wage would never enter the work force no matter what the incentives they might face.

    • #1
  2. Brian Clendinen Inactive
    Brian Clendinen
    @BrianClendinen

    The more our economy is based on tech and software, using GDP as metric for economic growth will become less meaningful. GDP has never been a great metric its just the best one we have had. I think Net worth increases along  with real wage increases is what the average American really thinks is economic growth.

    • #2
  3. iWe Coolidge
    iWe
    @iWe

    This is stuff and nonsense.

    How many intelligent people are employed to no productive work save for regulatory burdens?

    Solution: Close out the regs. Defund the enforcers.

    How many smart people are enslaved to unproductive government research grants?

    Solution: End government “funding” of research. Free the smart people to do something useful.

    How many smart people operate as parasites?

    Solution: tort reform.

    How many smart people spend their time figuring out and minimizing taxes?

    Solution: Simple flat tax

    How many people are dead-ended into professions they hate?

    Solution: End licensure. Support freedom.

    How many industries have massive barriers to entry thanks to government-enforced blocks?

    Solution: Let the markets decide who provides goods and services.

    There is ENORMOUS potential for growth – unshackle this nation!

     

    • #3
  4. BD1 Member
    BD1
    @

    No, it’s not.

    • #4
  5. James Gawron Inactive
    James Gawron
    @JamesGawron

    JimP,

    None of the traditional economic forecasts take into the account an economy tied up by absurd useless hyperregulation arbitrarily applied by capricious ideologues. Just by releasing us from this regulatory bondage I think we can hit 3% growth. With corporate tax reform and a health insurance market that works, we could hit 5% or 6% growth.

    The IMF doesn’t really believe in capitalism. They believe in socialism tied to the bureaucratic state pumped up by super-Keynesian central banking.

    Trump will chop the Gordian knot one way or another.

    Regards,

    Jim

    • #5
  6. profdlp Inactive
    profdlp
    @profdlp

    Hey, if Reagan couldn’t stimulate massive growth in the 80s, Trump sure as crap won’t be able to do it now.

    • #6
  7. The Reticulator Member
    The Reticulator
    @TheReticulator

    iWe (View Comment):
    This is stuff and nonsense.

    How many intelligent people are employed to no productive work save for regulatory burdens?

    Solution: Close out the regs. Defund the enforcers.

    How many smart people are enslaved to unproductive government research grants?

    Solution: End government “funding” of research. Free the smart people to do something useful.

    How many smart people operate as parasites?

    Solution: tort reform.

    How many smart people spend their time figuring out and minimizing taxes?

    Solution: Simple flat tax

    How many people are dead-ended into professions they hate?

    Solution: End licensure. Support freedom.

    How many industries have massive barriers to entry thanks to government-enforced blocks?

    Solution: Let the markets decide who provides goods and services.

    There is ENORMOUS potential for growth – unshackle this nation!

    I would support 1.35 of those 6 items.

    • #7
  8. OccupantCDN Coolidge
    OccupantCDN
    @OccupantCDN

    How can the US economy be in good shape?

    Look up the term “Dead Malls” on YouTube – there are hundreds of examples each representing million(s) square feet of retail space that are rubble. Look at cable subscriptions (down) premium cable channel subscriptions (also down) car loans in arrears, workforce participation, retail sales… Look at any statistic that the government can’t manipulate, and its screaming that the US economy is in serious trouble… and yet the babble heads on tv babble on, everything is fine buy stocks… etc etc…

    Not living in the US, I cant understand how anyone who actually lives there, and must be driving by these empty store fronts, the boarded up houses – and think everything is fine. How can it be fine? If it was fine someone else would be President.

    • #8
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