July 14, 2017
Office of Management and Budget Director Mick Mulvaney had a Wall Street Journal column highlighting the benefits of "MAGAnomics." The piece can best be described as a combination of Groundhog Day and outright lies.
<p>In terms of Groundhog Day, we have actually tried MAGAnomics twice before and it didn't work. We had huge cuts in taxes and regulation under both President Reagan and George W. Bush. In neither case was there any huge uptick in growth and investment. In fact, the Bush years were striking for the weak growth in the economy and especially the labor market. We saw what was at the time the longest period without net job growth since the Great Depression. And of course his policy of giving finance free rein gave us the housing bubble and the Great Recession.<br/><br/>The story of the 1980s was somewhat better, but hardly follows the MAGAnomics script. The economy did bounce back in 1983, following a steep recession in 1981-1982. That is generally what economies do following steep recessions that were not caused by collapsed asset bubbles. Furthermore, the bounceback was based on increased consumption, not investment as the MAGAnomics folks claim. In fact, investment in the late 1980s fell to extraordinarily low levels. It is also worth pointing out that following both tax cuts, the deficit exploded, just as conventional economics predicts.<br/><br/>By contrast, Clinton raised taxes in 1993 and the economy subsequently soared. It would be silly to attribute the strong growth of the 1990s to the Clinton tax increase, other factors like an IT driven productivity boom and the stock bubble were the key factors, but obviously the tax increase did not prevent strong growth.<br/><br/>The outright lies part stem from the comparison to prior periods' growth rates. Mulvaney notes that the 2.0 percent growth rate projected for the next decade is markedly lower than the 3.5 percent rate that we had seen for most of the post-World War II era.This comparison doesn't make sense.</p><p>We are now seeing very slow labor force growth due to the retirement of the baby boom cohort and the fact that the secular rise in female labor force participation rate is largely at an end. MAGAnomics can do nothing about either of these facts. Slower labor force growth translates into slower overall growth.<br/><br/>Mulvaney also complains about government benefits keeping people from working. The idea that large numbers of people aren't working because of the generosity of welfare benefits shows a startling degree of ignorance. The United States has the least generous welfare state of any wealthy country, yet we also have among the lowest labor force participation rates. The idea that we will get any substantial boost to the labor force from gutting benefits further is absurd on its face.<br/><br/>Mulvaney apparently missed the fact that energy prices have plummeted in the last three years. Oil had been over $100 a barrel, today it is less than $50. While it is always possible that it could fall still further, any boost to the economy from further declines will be trivial compared to what we have seen already. It would be amazing if Mulvaney was ignorant of the recent path in energy prices.<br/><br/>In short, there is nothing here at all. Mulvaney has given us absolutely zero reason that Trump's policies will lead to anything other than larger deficits, fewer people with health care, more dangerous workplaces, and a dirtier environment.</p><p><strong>CBO Slaps Trump Budget on Growth Projections</strong></p><p>Several news outlets have reported that the Congressional Budget Office (CBO) <a href="https://www.scribd.com/document/353685534/CBO-Budget-Analysis#from_embed">does not</a> accept the Trump administration's claims that its program will lead to a big surge in growth. It is worth mentioning in reference to this dispute that the "robots will take all the jobs" gang agrees with Trump in this dispute. Many people in the debate are probably not aware of this fact because it requires an understanding of third grade arithmetic.</p><p>Economic growth is the sum of labor force growth and productivity growth. There is not too much dispute about the rate of growth of the labor force over the next decade, since it is mostly due to population growth. Apart from large changes in immigration policy, we can't do much about the number of working age people who will be in the U.S. over the next decade.</p><p>The main question is projecting economic growth is therefore the rate of productivity growth. CBO essentially projects that the slowdown of the last decade will persist, with productivity growth averaging roughly 1.5 percent annually. The Trump crew is betting on a more rapid pace of productivity growth, as are the robots will take all the jobs gang. After all, robots taking the jobs of workers is pretty much the definition of productivity growth.</p><p>So, there are many reasons for mocking Trump and his administration, but if any of the robots will take the jobs gang mock the Trump growth projections, they are showing their ignorance. They agree with Trump's projections of more rapid growth, they are just too confused about the arithmetic and economics to know it.</p>
Keep reading... Show less