Perhaps you read
Office of Management and Budget director Mick Muvaney’s piece on MAGAnomics in today’s Wall Street Journal.
In it, he outlines President Trump’s plan to get to 3% GDP growth — what he believes is the natural state of the US economy.
If you didn’t read it, don’t worry about it. You really only have to be familiar with classic South Park episode to understand why Mulvaney’s concepts don’t work. The economic stuff we can fill in at the bottom of this post. Trust me, it’s easy to pick up.
Mulvaney believes that cutting taxes for the rich, cutting the welfare budget, investing in fossil fuels, and bullying our trading partners will cause the economy to magically grow again. Do all those things and BAM, 3% growth. It’s a magic elixir.
This sounds a lot like the business plan the Underwear Gnomes outlined in episode 17 of the second season of South Park. In the episode, Tweak, an over-caffeinated elementary school kid, believes that someone is stealing his underwear. Everyone thinks he’s nuts, until they find that there are in fact gnomes stealing his underwear to “make a profit.”
Their business plan is as follows:
- Steal underwear
- Make a profit
Obviously this is absurd. The gnomes don’t actually know how the underwear makes a profit or what its real value is. They just think stealing underwear is the magic elixer. It’s just the plan they know, and so they’re going to stick with it.
Back to Mulvaney, the plan that he outlines sounds pretty familiar. It harks back to a time when he and a lot of the other members of the administration were proud, young Republicans — the days of President Ronald Reagan.
Back then, the Gipper promised to do much the same thing that Mulvaney is promising. The world was dependent on fossil fuels (and had just finished reeling from a disastrous energy crisis in the 1970s), tax cuts were on the way, and the federal budget was being sliced and diced by Republicans decrying the excesses of welfare queens in collecting checks and riding around in their Cadillacs.
So Mick Mulvaney’s phase one is simple: Make America like Reagan’s America again.
Caught with your underwear
The problem, of course, is phase two. The actual part that makes the money. Mulvaney thinks that if he puts all of the Reagan elements together the economy will just magically grow again, just like they gnomes think that if they steal underwear they will make a profit.
But the problem is that in Reagan’s day people gave a lot of credit to tax and budget cuts that either didn’t really materialise, or ultimately had to be rolled back because they were hurting the economy.
We know the whole sordid story of how Reagan’s policies didn’t generate a phase two thanks to the man who had Mulvaney’s job in Reagan’s time. His name is David Stockman, and he laid out the whole sordid story of Reagan’s budget in The Atlantic.
There he admitted simply: “None of us really understands what’s going on with all these numbers.”
Stockman went to Washington ready to cut, cut cut — just as Mulvaney describes he would like to do — but the reality was he couldn’t cut programs that actually made a meaningful difference to the budget. Those programs have little to do with welfare, and more to do with the sacred cows Trump himself has said he’ll either increase or leave alone — Defence, Medicaid and Social Security.
If you’re not cutting these, you’re cutting bupkis.
And even outside of those making the cuts you do want to make, Stockman found, is almost impossible. In negotiations “Greed came to the forefront” and special interest groups and politicians made deal after deal to keep their pet programs in the budget. Which is to say, much of what Reagan wanted didn’t get done.
From The Atlantic:
“I don’t believe too much in the momentum theory any more,” he [Stockman] said. “I believe in institutional inertia. Two months of response can’t beat fifteen years of political infrastructure. I’m talking about K Street and all of the interest groups in this town, the community of interest groups. We sort of stunned it, but it just went underground for the winter. It will be back … Can we win? A lot of it depends on events and luck. If we got some bad luck, a flareup in the Middle East, a scandal, it could all fall apart.”
In other words, Reagan claimed victories but they were small. As for taxes, it’s also worth remembering that after his tax cut in 1981, Reagan was forced to reverse himself in 1982 and 1983 because of the federal debt.
Will the real phase two please stand up
So that leaves one question. What did actually produce the growth of Reagan’s America? The answer is not magic, it’s actually quite tangible. This is numbers, after all.
What really made the economy grow back in the 1980s was the amazing force of our country’s demographics.
“Back in the ’80s, baby boomers were coming into the labour force, and many women were entering the workforce for the first time, too,” Lee Branstetter, an economist at Carnegie Mellon told Business Insider back in February. “That resulted in the workforce increasing by 1.7%, and because of technological advancement, productivity growth was running at about 1.7% as well.”
That’s where you get your 3% GDP growth number. Not so magic after all. If you add a ton of people to the labour force, you’ll generate more economic growth.
What we should be doing is giving people the tools to get good paying jobs by funding training programs and investing in education. This can increase productivity and make our workforce more modern.
Instead, we’re stemming the flow of immigration (new workers) and cutting welfare, which means people can’t buy things. Since our economy is made up of people who buy things (80% consumer spending), this doesn’t help either.
And just FYI on tax cuts:
Shout out to Trey Parker and Matt Stone for this valuable lesson in economics.
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