The American Economy is Being “Unmuzzled”
Virtually the whole world is beating up on The Trump Administration for daring to predict that low marginal tax rates, regulatory rollbacks, and the repeal of Barack Obamacare will generate in the years ahead economic growth of between 3% and 3.5%.
In a TV interview last week, Treasury Secretary Mnuchin held the line on this forecast. He argued the need for dynamic budget scoring to capture the effects of faster growth. Good on him.
What is so interesting about all the economic-growth nay-saying today is that President Barack Hussein-Obama’s 1st budget forecast 8 years ago was much rosier than President Trump’s. There was not a peep of criticism from the mainstream press outlets and the consensus of economists.
Strategas Research Partners policy analyst Dan Clifton printed up a chart of the Obama plan that predicted real economic growth of roughly 3% in Y 2010, near 4% in Y 2011, more than 4% in Y 2012, and nearly 4% in Y 2013.
As it turned out that actual growth ran below 2% during this entire frame.
Was there any howling about this result among the economic consensus?
Of course not. It seems they’ve saved all their grumbling for The Trump Forecast Friday.
The Obama policy ailed to include a single economic-growth incentive, not 1. Instead, there was a massive $850-B spending stimulus, a bunch of public-works programs that never happened, and finally Barack Obamacare, which is a Giant tax increase.
Remember when Chief Justice John Roberts ruled that the healthcare mandate was in fact a tax?
But it was not just a tax, it was a tax hike.
And added to that were an 3.8% investment tax hike, a proposed tax hike on so-called Cadillac insurance plans, and yet another tax increase on medical equipment.
So 8 years ago tax-and-spend was perfectly okay. And the projection that it would produce a 4% rate perfectly satisfied the economic consensus.
Make sense? No, it does not.
So here comes President Trump reaching back through history for a common-sense growth policy that worked in the 1960’s, when JFK slashed marginal tax rates on individuals and corporations, and again in the 1980’s, when Ronald Reagan slashed tax rates across-the-board and sparked a 20 year boom of roughly 4% real annual growth.
Even so, the economic consensus will not buy The Trump Plan.
One after another, our President’s critics argue that because we have had 2% growth over the past 10 years or so, we are doomed to continue that forever, this is nonsense.
Most of President Trump’s critics point to the decline in productivity over the past 15 years. They say, unless productivity jumps to 2.5% or so, and unless labor-force participation rises, we cannot possibly have 3% or 4% growth.
Stanford University economics professor John Taylor, who’s also a research fellow at the Hoover Institution and one of the nation’s top academic economists, has charted how productivity declines can be followed by productivity increases, which unfortunately can be followed again by productivity declines.
In his widely read blog, Economics One, Taylor writes, “Take off the muzzle and the economy will roar.” He notes that bad economic policy leads to slumping productivity, living standards, real wages, and growth.
“Huge swings in productivity growth in recent years,” Professor Taylor writes, “are closely related to shifts in economic policy, and economic theory indicates that the relationship is causal.”
He concludes, “To turn the economy around we need to take the muzzle off, and that means regulatory reform, tax reform, budget reform, and monetary reform.”
Well, those are exactly the reforms that President Trump is promoting.
Get rid of the state-sponsored barriers to growth, and watch how these common-sense incentive-minded policies turn rosy scenario into economic reality.
Paul Ebeling, Editor