The clearest part of Trump's economic plan is also the most delusional part

Three per cent GDP growth.
Three per cent GDP growth. Three per cent GDP growth.

Get it stamped on your brain. Get it tattooed somewhere. Have some t-shirts made — because this is team Trump’s goal for the economy. In a time of extreme policy confusion, 3% GDP growth is one of the only firm targets we have to hang on to.

The problem is, in interview after interview, Trump and his surrogates have demonstrated that they have no idea how to get there.

Take for example Commerce Secretary Wilbur Ross’, confirmation hearing. He told Senators that a combination of tax reform, a more self sufficient energy policy, and increasing exports would do the trick.

“Combine those and get a fraction of a per cent of growth from each, and we’ll see the numbers we’re talking about,” he said.

Senior White House economic adviser Gary Cohn has also talked about the magic path to 3% GDP growth, mostly saying that tax reform and deregulation will get us there. Treasury Secretary Steven Mnuchin said the target was “very achievable” and spouted the same lines.

Unfortunately, that’s not how GDP growth works.

The way things are

GDP growth is actually a function of how many workers enter the workforce, and how productive those are. It has nothing to do with energy consumption or how much we export unless that manages to bring more workers

“The problem for the Trumpians is that we’ve had 8 years of recovery,” Carnegie Mellon economist Lee Branstetter told Business Insider. “Now unemployment is well below 5%, and there’s just not a lot of slack in the US labour market …
It’s essentially mathematically impossibly to get the growth they’re talking about.”

Branstetter is talking about challenges completely beyond the government’s control, like demographics. Baby Boomers are getting older and leaving the workforce and the generation set to takes its place, Generation X, is not as big. Also, immigration has slowed, which is another impediment to adding workers.

You see, workers don’t just take jobs. They buy things. They pick up breakfast on the way to work, they buy sneakers for their kids, they fill their gas tanks. That’s what the US’ consumption based economy runs on.

As for productivity growth, a lot of that is a function of technological advancement. The last time American workers actually got a raise (as in, normal people saw some wage growth) was from 1998-2000, during the height of the internet boom changing the economy. Other than that, American workers haven’t see their wages increase in about 40 years.

Guys, it’s not the 80s. Sorry.

Now you may be wondering where Trump and company got the idea that deregulation, tax cuts, energy policy, and the like can juice GDP growth.

Blame President Reagan.

A lot of Trump’s ideas come from the Reagan playbook — like, increasing the defence budget and cutting taxes and slashing budgets for tiny programs.

And indeed, GDP growth was stronger during his presidency, but it wasn’t because of those policies. Again, it was a function of demographics. Reagan, more like Obama, took office during a deep recession when there was plenty of slack in the labour market.

“Back in 80s Baby Boomers were coming in to the labour force and many women were entering the work force for the first time too,” Branstetter explained. “That resulted in the work force increasing by 1.7%, and because of technological advancement, productivity growth was running at about 1.7% as well.”

That’s where you get above your 3% GDP growth number.

Tax cuts and deregulation will only help if they spur people to hire more workers, but they also can hurt. Deregulation was a big factor in our last financial crisis, for example.

And as for tax cuts, according to the Center for Budget and Priorities, states that enacted big tax cuts haven’t seen strong job growth. The evidence that they help with jobs just hasn’t materialised.

What we do know, though, is that Trump’s policies will likely slow immigration, meaning fewer workers. We also know that his tax plan may include a controversial border adjustment tax on imports that could violate World Trade Orgnization rules.

That means angry trading partners, which means fewer exports sold and possibly retaliation. The point is, this reform and deregulation package has its upsides, but it has major downsides too. That’s probably why the White House’s messaging about what will and will not be included has been so mixed and confusing.

Lost in all of this debate is the idea that we could make our work force more productive through investment in education and retraining. That’s a longer process, and it costs money the GOP doesn’t want to spend at all, but it would ultimately create more lasting gains.

What’s more, the American people actually want it. Go figure.

This is an opinion column. The thoughts expressed are those of the author.

NOW WATCH: How billionaire hedge fund titan Steve Cohen walked away from the biggest insider trading scandal in history

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.