The International Monetary Fund has just released what amounts to an updated assessment of Donald Trump’s economic agenda, and it’s not a pretty picture.
Instructively, the IMF is now giving the United States the sort of social policy advice it had once reserved for emerging market economies.
The Fund has downgraded US growth forecasts for this year and next, down to 2.1% from 2.3% for 2017 and to 2.1% from 2.5% in 2018. But that’s just one of many of the IMF’s red flags.
“There are constraints being put on this economy by income polarization and high levels of poverty,” said Nigel Chalk, US mission chief for the Fund, during a press conference in Washington.
It identifies “the cost and availability of childcare is a constraint to labour force participation. It is also of concern that one-in-four single parent households are living in poverty.”
Echoing the ongoing debate about the death of the American Dream of improving living standards, the IMF finds “prospects for upward mobility are waning; and the poverty rate (at 13.5%) is one of the highest among advanced economies.”
The IMF also quietly excoriates Trump and Republican proposals to make sharp cuts to Medicaid that could strip millions of health coverage — and warns about the dangers of financial deregulation.
“Health care policies should protect those gains in coverage that have been achieved since the financial crisis, particularly for those at the lower end of the income distribution,” the IMF says. On financial rules, the report said “the current approach to regulation, supervision and resolution should be preserved.”
More broadly, the IMF’s assessment suggests Trump’s economic agenda is being derailed by the political chaos surrounding Trumpcare and the Russia investigation.
“The administration’s budget proposes to reduce the fiscal deficit and debt, to reprioritize public spending, and to revamp the tax system,” the Fund said. “However, during the Article IV consultation it became evident that many details about these plans are still undecided. Given these policy uncertainties, the IMF’s macroeconomic forecast uses a baseline assumption of unchanged policies.”
In other words, don’t expect any tax reform, infrastructure spending or regulatory overhauls any time soon.
As for Trump’s promise to more than double the US growth rate to 4%, a vow that has since been downgraded to 3% by his economic team? The IMF doesn’t buy it. “Growth is forecast to subsequently converge to the underlying potential growth rate of 1.8%.”
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