The other day, Donald Trump spoke at length about his plan to get the economy moving. He set a target to grow the economy by 3.5% per year over the next decade. That is higher growth than president Obama has achieved in any year he has been in office. Lately, the US economy has been growing at only a rate of 1% per year.
The response to Trump's proposals from the Democrats has been to mock it as an unachievable goal. Under the "new normal", these partisans tell us, our current 1% growth rate is about as good as we can ever hope to achieve. That's why these people tell us that Hillary's lack of anything new regarding the economy is not that important.
But is a 3.5% growth rate really unachievable? Could these Democrats be correct? Are we stuck with a very low growth economy for the foreseeable future? Let's look at a few facts:
1. Since World War II, the average growth rate for the US economy has been just about 3.5% per year. It has only been during the last ten years that growth has been so consistently slow. The last two years under George W. Bush, the country went through the great recession. During the eight years of Obama, we were supposedly in a strong recovery, but the GDP just didn't rise much. It really wasn't much of a recovery.
2. The things that often push economic growth during a recovery are (1) increased home sales especially due to people having delayed making purchases while the economy was tanking; (2) increased auto sales which also were delayed during the recession, and (3) increased business investment because regular levels of investment were cut during the recession. We have seen only an increase in auto sales since the recession. This is most unusual.
3. We now have a built up demand for homes that grew during the recession in 2008 and 2009. More important, we also have pent up demand that grew in each of the years since that recession. That makes a decade of pent up demand for homes. Low interest rates have not been enough to unleash this demand. It is going to take a change in the mindset of young adults so that they come to expect rising rather than falling incomes.
4. Business investment has also not been rising as one would have expected. A good indicator of this lack of investment is that labor productivity is now actually lower than it was two years ago. In other words, the USA gets less output per hour worked today than was the case two years ago. Falling productivity is normally the result of a lack of investment by business. If a large investment by the business community can be encouraged, the nation will see a major rise in productivity, a vast increase in employment and a sharp jump in economic growth.
5. The Trump plan for the economy will move the USA towards much stronger growth levels. First of all, Trump wants to change tax structures so that some of the two plus trillion dollars held by US companies off shore will be brought home. If even ten percent of these funds are brought back to the USA and invested in US business activities, that will raise investment by over $200 billion. That alone will raise the GDP by more than an additional 1% and probably much more. The Trump plan, however, will likely bring much more than just $200 billion back to this country.
6. The reduction in the business tax rate will also encourage major new investment by US firms. Decisions that are now close with regard to where to locate new jobs will be skewed strongly in favor of the USA. That means enormous increases in business investment, economic activity, and growth.
7. The new economic growth will mean raises for many, jumps in production, better future prospects and a return to a better economy. That change will also mean that many people who have been waiting to buy a new home will finally take the plunge and make the purchase. Higher levels of home construction will have a major ripple effect through the economy. It will further increase economic growth and that will start a virtuous cycle in which better investment leads to more consumption which leads to better investment, etc.
The only reasonable conclusion is that it just won't be hard at all to get the US economy to a 3.5% growth rate. If you add in Trump's plans to cut regulations that stymie economic activity, Trump's plan to rebuild the infrastructure, and the rest of his economic plan, we should see the USA exceed 3.5% growth.
Maybe the best way to say this is that if one puts partisanship aside, the Trump economic plan looks sound and likely to work.
The response to Trump's proposals from the Democrats has been to mock it as an unachievable goal. Under the "new normal", these partisans tell us, our current 1% growth rate is about as good as we can ever hope to achieve. That's why these people tell us that Hillary's lack of anything new regarding the economy is not that important.
But is a 3.5% growth rate really unachievable? Could these Democrats be correct? Are we stuck with a very low growth economy for the foreseeable future? Let's look at a few facts:
1. Since World War II, the average growth rate for the US economy has been just about 3.5% per year. It has only been during the last ten years that growth has been so consistently slow. The last two years under George W. Bush, the country went through the great recession. During the eight years of Obama, we were supposedly in a strong recovery, but the GDP just didn't rise much. It really wasn't much of a recovery.
2. The things that often push economic growth during a recovery are (1) increased home sales especially due to people having delayed making purchases while the economy was tanking; (2) increased auto sales which also were delayed during the recession, and (3) increased business investment because regular levels of investment were cut during the recession. We have seen only an increase in auto sales since the recession. This is most unusual.
3. We now have a built up demand for homes that grew during the recession in 2008 and 2009. More important, we also have pent up demand that grew in each of the years since that recession. That makes a decade of pent up demand for homes. Low interest rates have not been enough to unleash this demand. It is going to take a change in the mindset of young adults so that they come to expect rising rather than falling incomes.
4. Business investment has also not been rising as one would have expected. A good indicator of this lack of investment is that labor productivity is now actually lower than it was two years ago. In other words, the USA gets less output per hour worked today than was the case two years ago. Falling productivity is normally the result of a lack of investment by business. If a large investment by the business community can be encouraged, the nation will see a major rise in productivity, a vast increase in employment and a sharp jump in economic growth.
5. The Trump plan for the economy will move the USA towards much stronger growth levels. First of all, Trump wants to change tax structures so that some of the two plus trillion dollars held by US companies off shore will be brought home. If even ten percent of these funds are brought back to the USA and invested in US business activities, that will raise investment by over $200 billion. That alone will raise the GDP by more than an additional 1% and probably much more. The Trump plan, however, will likely bring much more than just $200 billion back to this country.
6. The reduction in the business tax rate will also encourage major new investment by US firms. Decisions that are now close with regard to where to locate new jobs will be skewed strongly in favor of the USA. That means enormous increases in business investment, economic activity, and growth.
7. The new economic growth will mean raises for many, jumps in production, better future prospects and a return to a better economy. That change will also mean that many people who have been waiting to buy a new home will finally take the plunge and make the purchase. Higher levels of home construction will have a major ripple effect through the economy. It will further increase economic growth and that will start a virtuous cycle in which better investment leads to more consumption which leads to better investment, etc.
The only reasonable conclusion is that it just won't be hard at all to get the US economy to a 3.5% growth rate. If you add in Trump's plans to cut regulations that stymie economic activity, Trump's plan to rebuild the infrastructure, and the rest of his economic plan, we should see the USA exceed 3.5% growth.
Maybe the best way to say this is that if one puts partisanship aside, the Trump economic plan looks sound and likely to work.
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