None of the bad ideas about economic growth we’re about to discuss are new. But for the next few days — as Washington starts debating our tax code and budget in earnest — our country is going to be just lousy with them.
Despite Donald Trump’s promises to balance the budget and spur economic growth with infrastructure spending, he has instead decided to take old, hackneyed Republican economic policy and Trumpify it (which is to say, make it big league). That means a platform of massive tax cuts, deficit spending, and pushing off government investment in public goods off to… whenever.
Of course, his surrogates — and some of the originators of these ideas — are out in force, giving their full-throated approval to ideas that have never proven their worth. The following is smattering of all that.
Duh, just grow the economy
We’ll start with Trump economic advisor Stephen Moore in today’s Wall Street Journal.
Right now the Congressional Budget Office (CBO) is projecting that the economy will growth at about 1.9% over the next 30 years. That’s bleak, writes Moore. By his conjecturing, we can pay for Trump’s tax cuts, and take care of all our problems, if we can just put 3% GDP growth in our models.
“…consider what happens to the CBO’s numbers assuming 3% annual growth. By 2040 the economy would expand not to $US29.9 trillion, but to $US38.3 trillion, according to an analysis by Research Affiliates, a California investment firm. That’s an additional output of $US8.4 trillion — roughly the entire annual production today of every state west of the Mississippi River.”
(The country actually reports its first quarter GDP on Friday, and Bloomberg estimates it will come in at 1%.)
It sounds great, and considering that Moore is a holdover from the Reagan era, none of this should be surprising. That was a time when the CBO threw out economic models they didn’t like and simply built new ones. It was a time when so-called “Voodoo economics” really took hold of the Republican Party.
And you can see some of its questionable tenets in the pathway Moore explains will take us to 3%:
- Improving technology and robotics like self-driving cars.
- Increasing labour force participation despite demographic challenges (i.e. Baby Boomers leaving the workforce).
- And of course, the topic du jour: tax cuts, tax cuts, tax cuts.
Doctor, my eyes
Where to start?
Moore does not address the jobs that would be lost thanks to self-driving vehicles (it’s not just valet parking folks, the trucking industry will be decimated by this), nor does he address the jobs that have already been lost thanks to technological advancement. He does not touch on the only thing that can mitigate this issue, which is retraining our workforce for a different kind of economy (education, where did that idea go?).
Moore does, however, address the fact that an economy that demands an expansion of the labour force requires immigration. Obviously, that’s antithetical to Trump policies, so he writes, embarrassingly… “immigration is America’s natural demographic safety valve. Letting in more legal immigrants — especially those with skills and special talents — may not happen under President Trump, but it can and should eventually.”
Where Moore and Trump seem to be on the exact same page, is on these tax cuts.
“The Tax Foundation predicted last year that the House Republican tax reform alone would raise wages by 8%, GDP by 9% and capital investment by 28%. If this is even close to being right, pass the tax cut now and stop obsessing about whether it is paid for within the short-term budget window,” he writes.
Of course, the Tax Foundation is a think tank that runs exactly on Moore’s speed.
Guys, everyone knows this is tired
More and more, economists are rejecting these ideas, especially in an age of massive inequality when the government needs resources to blunt the dramatic impact of economic change (like robots, sir).
“Trump’s proposal to cut corporate tax rates won’t boost growth or create jobs. In fact, it will discourage corporate investment, as corporations and their shareholders earn even higher profits and pocket more of the cash–just like they did last time we tried a big corporate tax cut,” said Marshall Steinbaum, Senior Economist and Fellow at the Roosevelt Institute. “If Trump wants to encourage investment, he should close loopholes that CEOs exploit to move profits offshore and increase the effective tax rate on corporations, their CEOs, and their shareholders.”
But of course, that’s not what’s happening. Treasury Secretary Steve Mnuchin is running around talking about how tax cuts will pay for themselves. He will be helped with that, in part, by dynamic scoring — another Reagan era practice of adding the estimated growth tax cuts will “create” to budget projections.
Meanwhile, the originator of all this, economist Arthur Laffer of “Laffer curve” fame, has a feature in the New York Times. Luckily, his ideas are buttressed by appropriate criticism from both sides of the aisle.
Douglas Holtz-Eakin, a former Congressional Budget Office director who advised Senator John McCain‘s Republican presidential campaign in 2008, was equally sceptical. “I can imagine cutting the rate to 15 per cent,” he said. “I can imagine growing a percentage point faster. I can imagine raising $US2 trillion in revenue. I can’t imagine them being one and the same policy.”
Laffer on the other hand, says the tax cuts are a “no-brainer.”
I suppose we agree on that.
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