About Economic Arrogance
The other day Paul Krugman took a whack at the Trump administration’s “economic arrogance.” He was referring to the administration’s repeated claims that its policies can supercharge U.S. economic growth, taking it as high as 3.5% per year for a decade or more.
The idea that the government can make the economy grow much faster than it does today seems to be an article of faith for many Republicans. During last year’s campaign, more than 300 economists signed an open letter insisting that the economy “could and should be growing 3 to 4 percent.” More recently, Kansas governor Sam Brownback told the Conservative Political Action Conference on February 25, “We’ve got to get the national economy growing above this paltry 1.8%, and I think it’s going to be a key measure for Trump.”
Krugman is right to criticize Trump, and many other Republicans, for insisting that their standard economic nostrums, tax cuts and deregulation, are sure to make the economy grow faster over the long run. There’s plenty of evidence about this; as I point out in my book An Extraordinary Time, the “supply-side” policies of the Reagan Administration, which emphasized lower marginal tax rates and less regulation, failed to rejuvenate U.S. productivity growth and produce an economic miracle. On the contrary, productivity growth during the Reagan years was lower than at any time between World War II and 1977.
So I agree with Krugman that when they promise they can make the economy grow faster over the long term, the Republicans are blowing smoke. But it is only fair to point out, as Krugman does not, that many Democrats have done much the same thing. Since at least the 1970s, many Democrats have insisted that the Federal Reserve could make the economy grow faster if only it would, despite ample evidence that Fed policy has little to do with productivity growth. Economists backing Bernie Sanders’s quest for the Democratic presidential nomination last year insisted that his tax and spending plans could make the economy grow 5.3% a year — an even faster growth rate than Trump claims he can achieve. While Hillary Clinton’s campaign offered no specific claims about the extent to which her economic program would bring faster economic growth, the campaign was happy to point to an analysis by Moody’s contending that the Clinton program would add about three-tenths of a percent to annual economic growth over the next decade.
Suffice it to say that I’m skeptical of such claims from any source. Looking more than a couple of years into the future, the main source of economic growth is higher productivity. And as I point out in An Extraordinary Time, productivity grows unpredictably and erratically, due more to private-sector innovations than to government policy. Economists of all stripes often like to pretend otherwise. Arrogance knows no party.Tags: Donald Trump, Federal Reserve, productivity