“I believe it’s time to establish a national goal of reaching 4 percent economic growth. And my great economists don’t want me to say this, but I think we can do better than that,” said Donald Trump during the campaign. Byt the time the Trump presidency was underway, the goal had been scaled back from 4 percent growth to 3 percent annual growth. Last year’s Economic Report of the President forecast growth over the magic 3 percent line through 2024.
Trump continues to boast about the Greatest Economy in History. But his economists continue to scale back their forecasts. Today, the administration released its 2019 Economic Report of the President. In the latest forecast, the White House has ratcheted back its growth projection yet again.
The new report notes, on page 527, “current-law baseline forecast is for output growth to moderate as the capital-to-output ratio asymptotically approaches a higher steady-state level in response to business tax reform, and as the near-term effects of the TCJA’s individual provisions on the rate of growth dissipate into a permanent level effect.” Translated, they’re saying that the Trump tax cuts temporarily stimulated the economy by jacking up the deficit, but now that effect is wearing off, and the growth level is expected to sink below 3 percent a year.
But the report tries to hide the bad news by shifting to a new argument. Trump’s real policy agenda includes lots of new deregulation and massive infrastructure investment:
Because the Administration’s forecast is policy-inclusive, a key downside risk is the political contingency of full implementation of the President’s economic agenda, particularly in light of the inherent unpredictability of the legislative process. In addition, by definition the policy-inclusive forecast assumes that the Administration’s policies will be implemented and remain in place throughout the forecast window.
Translation: If Congress passed Trump’s brilliant new economic ideas, then growth would be higher. But just in case it doesn’t, we’re including a forecast for what happens if we merely keep current policies in place. And then if growth fails to hits 3 percent, it’s Congress’s fault, not Trump’s.
The red line is current policy — i.e., all the wonderful economic policies Trump has enacted. Trump’s economists are predicting these policies will not produce 3 percent growth (let alone the 4 percent or higher Trump promised during the campaign). That’s why the dotted blue line, including hypothetical additional policies that aren’t going to happen, have to be added to the forecast:
One key flaw in the logic is that Trump’s brilliant new policy agenda does not actually exist. The Economic Report calls for a massive new infrastructure investment program. That probably would increase growth. But Trump never bothered to negotiate any such plan when his party controlled Congress. His current budget proposes to cut infrastructure spending. And Trump’s regulatory agenda of putting lobbyists in charge of all the agencies, and allowing coal plants to spew more pollutants into the air, and so forth, is working whatever market magic it’s ever going to work.
The Trump tax cuts were a massive lump-sum transfer to business owners from everybody else. Other than temporarily give the economy a slight jolt at a huge permanent cost to the Treasury, that’s all they did. Even Trump’s own economists are finding it impossible to pretend that their promises are going to come true.