The Trump Administration Is Optimistic About Economic Growth. Be Skeptical.

Excellent analysis, thanks.

Sorry to be late. I was reading the 700 page rise and fall of American capitalism. My take away from the book is that barring a "deu ex machina" we shall be lucky to do 1.5 % per year if we can find workers and customers for that. At 73 we just buy meds and foreign vacations.

This is all very nice but unless more countries begin purchasing all the goods being produced worldwide, all the rest does not matter. The high GDP from 1946-1960 had to do with the fact that Europe was being rebuilt. The 3.3% GDP through 1999 was a result of more people moving into the middle-class, i.e., purchasing more goods. Unless the poorer countries can move more people up the economic ladder, it doesn't matter how much productivity is improved. Whose going to buy the products?

The only certainties that will come out of the tax cut for the rich and corporations are that inequality will worsen and future government debt and deficits will skyrocket.

I see no reason that our economy can't grow faster, sure 6% is not reasonable, but 4% is. If we have to force other country's economies to grow more slowly or even be reduced to make our economy grow do so. We have plenty of needs, and a lot of demand that supports economies around the world, force it to support our economy.

Good clear analysis. I am long familiar with Republican economics. Early in the Reagan Administration I as an officer of Marines had to work on the annual budget for part of Marine Corps Base Camp LeJeune. This was far out of my areas of expertise, but the Master Sergeant who normally did it (and who had already done most of the work) had been called away on an emergency basis. When we estimated how many miles we would drive, the Administration required that we compute costs based on the price of gasoline which the Administration provided. I recall that the figure specified was less than we were currently paying, and I kinda expected the price of gas to go up, but I understood that many agencies were preparing budgets so these numbers had to be standardized. In the wilds of Camp Lejeune were a few oil wells pumping up crude of a grade well below West Texas Sweet. The Administration required that we compute our income from those wells at more per gallon than we paid for fuel, and not count expenses involved with our wells. To quote Cookie Monster, it boggles da mind! And unfortunately Trump and his followers are even less logical than Reagan.

None of these projections account for a potential recession at any time, despite having a 9-year expansion already. The tax bill frontloads investment with short-term expensing of capitol investment and a massive deficit. At some point it will be no longer a question of growth rate but the timing and extent to which an overheated economy leads to the inevitable contraction. The Republicans can only hope it's after 2020, but it's hard to imagine that it won't happen, since there's no precedent for unending expansion.

This is standard plutocrat three card monte. In about 4-6 quarters, it will become quite obvious that the federal budget deficit is unsustainable in the medium term. The kind of graphs that especially the right-wing press will be plastering on their web pages then will involve timelines for the US government going fully bankrupt. Of course, the fact that the recent tax cuts for the richie rich dislodged the government budget equation from being sustainable under 2% growth to being unsustainable even with grossly optimistic growth forecasts will then be forgotten, and time will then be ripe for plutocrat minions like Paul Ryan (yuck) and mnuchin (blech) to start talking about cutting Medicare and social security. That's how it works folks.

There is one more undiscussed wild card in these rosy predictions: a paucity of regulations and the lack of enforcement of those that remain on the books results in a catastrophe of national scale, such as a power grid collapse, a BP-level oil spill or a massive release of toxins into groundwater. Also, let's not forget the more ferocious storms that accompany climate change—which, despite this administration's obstinate protests to the contrary, is very much a real thing. Any mix of such disasters could deal a severe blow to the economy, not to mention the speculative bubble that will undoubtedly result from such overheated growth. Trump's budget resides in a delusional dream world, as does he.

"Even if you treat those musings as presidential bombast, his administration is making detailed projections that the economy will expand much faster in the decade ahead than it has in recent years — a forecast that underpins the Trump policy agenda." Trump's administration is not 'making detailed projections' - Trump's administration is indulging in pie-in-the-sky fantasy forecasts of effectively impossible economic growth to justify huge tax giveaways to the wealthy. Trump's administration is propagandizing entirely unrealistic GDP growth estimates to attempt to justify huge deficits and a giant runup in the national debt. Trump has completely abandoned fiscal responsiblity, abandoned fiscal sanity, and these idiotic imaginary growth forecasts are one symptom of the insanity. Along with his attacks on American democracy, American culture, American morality, and American values, Trump is attacking America's future prosperity at the roots. There is no more clear and present danger to America's national future than Trump and Republican's policy plans.

Where will the people come from to make this happen? Baby boomers will be in desperate needs of just nursing home care assistants, many of whom being deported, just for toileting. Trump is running American as he did with those companies which went bust, but GOP Congress has given him extra help.

Not Neil Irwin, not anyone can predict our growth rate..except maybe my wife..she knows everything..

When will the Emperor finally notice he has no clothes?

"“We think that labor force participation has dropped in the past decade in part because of government policies that discourage work,” said Ms. Nordquist, including growth in Social Security disability insurance and the Affordable Care Act. " The White House believes that businesses will be encouraged to invest and that's going to expand productivity. Only businesses will invest in robots and that's going to cut the number of workers so it's going to discourage people from getting an education and working in high tech jobs, plus the number of robot repairmen is going to be a fraction of the numbers of workers that the robots will replace. Inflation is increasing and that's going to cause business to have to pay more for borrowing and equipment costs. "Private businesses would feel the squeeze, too. If the government starts paying higher interest on its bonds, companies will have to do the same for corporate bonds. That’ll make it costlier for them to raise money, reducing investment and even dampening overall productivity", excerpt from the 538 blog written by Evan Horowitz. Horowitz goes on to say "This time around, the U.S. is liable to enter its next recession with a substantial deficit, inflaming concerns that even necessary stimulus would be just too dangerous." To the republicans this is a feature, not a glitch. It's just what they need to kill off the last vestiges of the New Deal. This November we should send them a message - be gone now! The longer we wait...

There is always a trade off between higher growth rates and higher inflation rates. The fact is that growth in the economy is going quite well at the present time. The negative influences on national welfare derive from factors other than the actual growth rate and unemployment rate. There is a crisis of employment for males between 40 and 60 who do not have the skills and education to compete in the current highly technical environment. The Trump policies of generating economic expansion and growth are related to this problem and are designed to increase the employment opportunities of this marginalized group.

There is not going to be nearly as much capital investment as the administration or Mr. Irwin believes. The impulse to invest resides in capital, but the ability to invest resides in favorable opportunities. Such opportunities are scarce now. There is way too much capital available; as my brokerage advises in its general statements, one of the three bearish factors facing the economy is what they charmingly call "excess savings." If there were wonderful opportunities to invest money in the USA, companies like Apple would have brought home their offshore funds and paid taxes on them in order to make these investments. But there are no such opportunities, and the changes in the tax law will not create any additional opportunities, and the growth from capital investments will not accelerate from recent norms. We will count ourselves lucky if it even maintains recent rates.

Bubble economies are great for people with piles of cash to buy small struggling companies cheap. During downturns, small companies struggle to get financing and they sell themselves for a small percentage on the dollar or they go under and lose all to creditors like Goldman Sachs. The next downturn can't come soon enough for those holding the cash. They all just got a big tax cut too.

Irwin looks at ways "how a single company can produce more goods and services." But what he fails to consider are the reasons a company will WANT to produce more goods and services. If there are not enough customers with money to to buy the extra goods and services produces, the company would be foolish to to so. Today there are not. We have just have 2 studies that showed if the typical American family had a real emergency & had to come up with some money, they couldn't do it. One said about about half the people couldn't come up with $400 & the other that 2/3rds couldn't find $1,000. There are two reasons for this. One is the federal gov is not sending enough money to the private sector. It does this by deficit spending, but the deficit has fallen 75% since 2009. The other reason is that the money it and the FED HAVE sent is not very useful. Economist would say it has low velocity which means it doesn't change hands in domestic commerce very much. If you look at what has happened to the velocity of money since 2008, you see it has plunged. Why is this? Because too much of the money is going to the people who do not need it & use it to speculate. If you compare the percent of money going to the 1% with the velocity of money (MZM), you will see the curves are almost precise opposite of one another since at least 1960. THUS, while Trumps' polices may send some more money to the private sector, most of it will not be useful.

Here we go again. It's the Kansas experiment run on a national basis and I'm afraid the results will be similar. The fact is that we already know about the economic and demographic forces that will shape the future. And a lot will have to go right for the Trump administration’s forecasts to come true. For one thing we couldn't have a recession in the next 10 years because a year (or two) of negative growth would torpedo both their growth forecast and their national debt projections. My advice is to batten down the hatches. The people in charge appear to know nothing about economics (or much of anything else). It's like Larry, Moe, and Curly getting onto a sled and heading down a steep slope ending in a large ditch and screaming and hollering all the way down (until they hit the ditch) except in this case we are all along for the ride!

I wonder if they really are so optimistic about growth or are just simply pushing an agenda and a story to go with it. Trump is interested in "wins" for his side: lower taxes for the wealthy, less regulation, etc. Whether this contributes to robust growth is secondary to that agenda (and makes for good marketing while selling it).

Recall that U.S. real GDP growth is driven by the sum of two factors: growth in employment (the number of workers) and growth in productivity (output per worker). Based on demographic factors such as population growth and labor participation rates across an aging workforce, combined with an unemployment rate that already stands at just 4.1%, the employment contribution to GDP growth is likely to average just 0.3% annually over the coming 7 years; a small fraction of the post-war growth rate. On the productivity side, U.S. productivity has persistently slowed from a post-war average of just over 2% annually, to just 1% over the past decade and only 0.6% over the past 5 years. That leaves the baseline expectation for real GDP growth, even in the absence of a U.S. recession, at just 0.9% annually. On the productivity front, booms in U.S. productivity are typically paced by growth in capital expenditures and other domestic investment. As a historical regularity related to the savings-investment balance, booms in domestic investment invariably emerge from an initial position of balance or surplus in the U.S. trade balance. Given the deep deficit at present, such a boom is not likely forthcoming.

This is an interesting article, but I think there is a responsibility to talk about consequences. As the article points out, it’s hard to justify the treatment of the inflation. That’s one reason virtually no economist recommends stimulation for an economy at essentially full employment. Inflation is a double whammy, as it increases both the deficit and the interest to be paid on that debt. That is just one bit of the sheer “I’m a genius” foolhardiness of Trump’s economic plan. Trump pulled a fast one in his State of the Union speech, when he used current prosperity as validation of his new tax cut economics--which is in fact a rejection of everything that got us here. We are doing a massive, deficit-funded stimulation of an economy at essentially full employment while eliminating all oversight of speculation and other bad behavior. That's a perfect recipe for a repetition of 2008--with a far bigger hole to climb out of.

Plainly, the White House is engaged in etch-a-sketch fabulism, and 'truthiness' that would make the 'funny-looking old man' who sold Jack the Magic Beans in the fairy tale, blush with shame. But this White House is utterly shameless.

The way productivity growth gets more stuff out of each hour worked is to get rid of the workers. Automation is killing jobs left and right. If there are lower labor costs due to fewer jobs, then profits will go up. This will register as a gain in GDP. But the profits will go into fewer hands. Automation is the factor here. We are entering an age where the old rules don't apply. The goal of automation is not to make workers more productive, but to get rid of the workers. So what are they supposed to use for money?

This is an on-point discussion by Mr. Irwin regarding key "supply-side" issues currently facing the US economy. One item rarely mentioned is how the decrease in the corporate tax rate from 35% TO 21% will increase the cost of borrowing by about 21.5%; calculated as follows: [(1.00 - Tax Rate) x Interest Rate = After-tax interest cost]. So since: (1.00 - 0.35)= .65; and (1.00 - 0.21) = 0.79, then after-tax interest costs should, under the new tax bill, increase by: [(0.79 - 0.65)/0.65 x 100] = [(+0.14/0.65) x 100] = +21.5%. A comparison to the "aggregate demand," or "demand side" of the model can also be juxtaposed, to glean comparative info. This demand model is formulated as: [Y = C + I + G + (X-M)]; where Y = National Income or GDP; C = Consumption spending; I = annual Investment spending by businesses; G = Government spending via transfer payments; X = Exports; and M = Imports. If interest rates do increase, as projected, how do the checks and balances built into the economy act to ease into new equilibria without systemic friction and turbulence. For example: The health care sector accounts for about 18% of a $19.4 trillion US annual GDP. This sector in the US is relatively unregulated and has certain highly priced segments, such as pharmaceuticals. Yet, it delivers longevity and infant mortality rates that trail those of many developing countries which spend less than 10% of their GDP on healthcare. [JJL 2/15/18 Th 12:35p Greenville NC]

Growth? Growth? Where would growth money come from? Have you driven down most any of America's pothole streets?. Or across the countless shaky bridges? It is difficult beyond belief to find a parking spot or a smooth street.......

I've never been a believer that increasing productivity for the sake of doing so will stimulate the economy. It's consumption which truly drives the economy. Over producing, or producing products for which there is no demand, does nothing to stimulate the economy and if it goes on for long will harm it. Cutting regulations, decreasing taxes, increasing wages and give backs will increase the demand for goods and services, but only if they are the right ones. It all boils down to how we nurture the demand, not the supply.

Economic growth is difficult to predict, as it is based in part on factors we don't control - global growth, war, natural disasters. He can say what he wants, but...his money is only as good as his word. And his word is as mercurial as his temper and dis-temper.

Let me confine my comment to factory productivity growth, the heart of the matter The Trump administration is putting a bet on that the productivity , long stagnant, will grow. This is not totally crazy (think A.I an deep learning) but you decide. From The Economist "The first is the prospect of another productivity surge. Productivity growth has been feeble everywhere since the financial crisis. There are signs already that productivity is rebounding. In every quarter of 2017 it was more than 1% higher than a year before, the first such sustained growth since 2010. The trend seems to be continuing this year. A real-time estimate of annualised GDP growth in the first quarter of 2018 by the Atlanta Fed stands at 4%. If this estimate is even close to correct, it points to strong productivity growth. The alternative explanation is an unusual rise in employment or average hours worked. But job growth has in fact slowed in recent years; in January it was barely above the average for 2016, when the economy grew by just 1.8%. Average hours worked have fallen slightly." https://www.economist.com/news/united-states/21736554-threat-inflation-l... What is for sure is that we are off to a race to the unknown. Not as scary as you may think Keep in mind that classical maco-economist have a miserable record in forecasting the future. Collectively , with nary an exceptions, they failed to predict the Great Recession of 2008.

Mr. Irwin (and others) really need to be much more explicit about what appears to be an assumption that changes in the corporate profits tax would affect the amount of productive investment. Classical theory of profit-maximizing firms with market power suggests that it doesn't. The contention that it would seems to depend on assumptions that go largely unstated and that are debatable. Overall, it wouldn't seem justified to blandly assume anything without being much more explicit.

Trickle down still doesn't work. Never has, never will, but the robber barons can only see their own bottom lines.

There's another negative feedback loop not mentioned. Total hours worked do not necessary stay constant as productivity increases due to capital improvements. In fact, companies may well use the latter productivity increases to reduce their labor force. There needs to be sufficient demand for companies to maintain labor hours while productivity increases. When income and wealth are highly skewed, mass demand does not necessarily go up as the economy expands. We shall see.

Edward Abbey: "Growth for the sake of growth is the ideology of a cancer cell."

We have now adopted the "Five Year Plan" of the former Soviet Union. It looks good on paper but somehow all the pieces never fall in place.

The "stock market" is rising again. Yes, the wealthiest are getting wealthier and BIG corporations bring their tax-evasion money back to the safety of OUR U.S. Treasury, give employees bonuses, which they write off their taxes and the employees get to pay for, and buy back stock to further enrich themselves. It's nirvana for Robber Barons. Hell for the rest of the world.

Here is the BLS labor market participation table by age and sex: https://www.bls.gov/emp/ep_table_303.htm Note that men aged 25-34 are at an 88.8% participation rate, and the BLS is projecting an even lower rate in 10 years. Surely we have additional people available to join the labor force. Right now employers discriminate against minorities and guys who have been to jail, figuring they won't make great workers. But if workers are desperately needed, they'll take just about anybody and find some use for them.

Anything on the horizon that promises to "increase productivity" seems to involve replacing workers with technology: AI, industrial robots, self driving vehicles. What can't be "automated", teaching, medicine, law, etc, is considered to be intrinsically inefficient. The message to the up and coming workforce is, 'don't pick a field that can be automated'. Traditional economic growth models were labor and capital share gains from productivity need to be adjusted to reflect the growing inequality in the share given to labor.

Isn't funny how these projections never predict a recession, even though that's what happens every 8-10 years? Trump, the Fed, it doesn't matter who makes the prediction. No one is willing to admit reality when it comes to the economy.

That the Republican fiscal actions will collude with one or another real-world economic failure and produce a financial disaster is a given. That the 20% of Americans who vote reflexively will go Democratic in the aftermath of this disaster foretold is also a given. And the final certainty is that when the next recession hits, the Republicans will again remember that deficits and fiscal stimulus is bad and will do everything in their power, probably quite effectively, to block any relief measures proposed by the new Democratic Congress and President. But what if, just maybe, for once that 20% of unthinking voters remember that they have been consistently hosed by the Republican Party and stay with the Democrats? Nah, never happen, but it is a sweet fantasy.

What is true a century ago with Henry Ford is true today and will be true everyday into the future. If you have no customers, then your business ( or the overall economy cannot grow ). This maxim becomes truer and truer as the gap between the haves and the have nots becomes increasingly large. Pay people a fair wage ( with benefits ) and cut down on trying to squeeze every last drop of percentage points of profit ( or blood ) out of them and they will contribute more to the economy as a whole, than any single billionaire could. Simple math.

And what do the Trumplings propose to do when the next economic downturn, or financial crisis, happens. They have already maxed out the two traditional tools, huge increase in government spending and huge increase in government debt. So what will they do?

American fertility rates are down, investment in R and D is down, and if the Trumpsters get their way, immigration will go down, bigly. Add to that the likelihood that corporations are likely to “invest” their new tax cuts into things like stock buy-backs or similar non-productive rent-seeking activities and you’re facing the very real possibility of a drop in the economic growth rate. Thank you, Neil Irwin, for injecting a note of reality into the discussion: something that Republican economic projections scrupulously ignore.

Let's see, whose model should we consider more plausible: the offices of the CBO, the Federal Reserve, and Private-sector experts who agree on this? ... or Trump, the guy who said over and over again that he and his rich friends "wouldn't benefit" from the tax cuts? Oh, and I almost forgot there's Mnuchin and his dynamic model that is so secretive that no-one has seen it. Yeah, I think I know who I'll be betting on and it won't be Bone-spur Don, the philandering fraud. And what none of these models can take into consideration is the Trump wildcard. As in, what will happen if he starts a war in North Korea and Seoul gets blasted, throwing the 12th largest economy in the world into chaos? Or we get into a war with Iran, or Lord knows where else old "Fire and Fury" will decide to fire at? Yeah, no good scenarios there. I'm playing a very conservative hand with the good economic times we are now experiencing for they will be fleeting, I assure you.

Total productivity factor (TFP) concerns the re-allocation of resources so that the same inputs can produce more output. The reallocation can be caused by different and better management practices. Competition between firms using similar inputs but different management practices can shift production to the more efficient firms, thus increasing output for the sector as a whole. Separate factors contributing to overall productivity can come from the use of new capital equipment and increased labor force participation.

The graph that I would love to see? Precisely the one you show, but with the actual GDP included. Then we could see not only who is most "optimistic" but also whose predictions have most closely matched the ensuing reality, in other words, whose predictions are the least biased.

I will not believe anything Trump has to say about money, wealth, or taxes until Trump releases his tax returns, as he said he would when he was a candidate.

Increased capital, increased hours, increased productivity – the same-old-same-old belief system that just doesn’t work. For any of these elements to change the economy, there has to be demand for the goods and services. Now the economists eyes roll. Hayek believed, as do his adherents to this day, that infusing the “Job Creators” with cash will lift the economy because more people will be hired, more new capital equipment put into production creating increases in productivity and productivity. However, without an increase in demand, who will invest money in plant, equipment, labor, et cetera? Nobody. Consumers are the real job creators but no economic text books will tell you that. None of that additional cash strewn upon the wealthiest Americans will ever trickle-down to the consumer class. These projections are all way off unless or until they can show how demand for goods and services increase in an economy where the lower and middle income sectors are saddled with the current level of debt and cannot afford a $400 emergency.

If you’re being optimistic, then increased productivity should assume disproportionately higher returns to scale.

Your headline is right. Also don't ask for what you want, you may go it. The greater increase in growth over say 2-3% primes the economy sooner or later to go into a recession or worse. Obama maintained the boring, chugging along slight growth in GDP without a recession or worse for eight yrs. Also the massive upcoming Trump deficit is the TNT in the room, waiting to be lit. Yes Obama has massive deficits in his early yrs. but after the banks were bailed out (they paid it back), the rest of the spending went to the people. The Trump deficits are a trillion dollar rifling of the treasury to billionaires.

Another good synopsis of the evidence-free zone that is GOP economic policy (cf., say, Paul Ryan). “Total factor productivity” smells a lot like your colleague Professor Krugman’s “confidence fairy”. Never bet against Murphy’s Law.

Notice, the carry trade is back via weaker dollar. Classic late cycle debt behavior. My guess besides corporate bonds rolling over, personal debt cannot rise much more and is likely to start declining during the 2nd half of 2019. This suggest a moderate credit contraction in 2020 and NBER recession starting the same year.

You did not mention the two factors that will hamper the economy if Trump gets his way - There will be very few new workers to hire if immigrants are deported (US demographics show a declining birth rate) and there will be fewer markets to sell in with withdrawals from deals like TPP and NAFTA, among others. A third factor may be the ability for the US to maintain low interest rates on its escalating debt. Trump's sunny projections may be evidence of why someone who has gone bankrupt 6 times should not be president.

if I understand the logic of investment in a capitalist society it is to make a higher total profit by selling (as opposed to simply producing) "more stuff". Or by selling the same amount of stuff but produced at a lower per unit cost. So where are the markets for this stuff? Incomes for most Americans have been relatively stagnant for four decades. To the extent public policy across that time has shifted income to the top 1 percent or 5 percent it may have increased the possibility that some people can afford luxury condos but the costing most of us a greater percentage of disposible income going to housing. Soaring higher education costs provoked by a decline in public support soaks up purchasing power via debt repayment. And some segments of the population will confront higher healthcare costs, higher transportation costs, and higher taxes, further diminishing their capacity to buy "more stuff". So with long-term public policy effectively shirking many markets exacerbated by, not mitigated by choices made by the Trump Administration, why should I as an investor make risky investments? Better to channel my investment capital in government bonds paying a premium because tax rates on those with high incomes are so low they do not yield enough to cover even reduced expenditures. We cannot all buy shares in defense companies and brokerage houses. I fail to see why a good capitalist would want to invest in the Trump Administration's fantasy world of an economy.