Trump's great growth debate
What to make of this debate?
Be skeptical of both sides.
In my nearly half-century of covering economics, I have become convinced that economists don't understand productivity except at a general level. Put differently, most economists have failed to predict major productivity changes, whether up or down: the slump in the 1970s; the 1990s revival; and the present collapse.
Productivity is too complex. It may respond to policy, but it also responds to many other things, including something as vague as a country's "economic culture." The trouble is that if you can't predict productivity, you can't predict economic growth. (Why? Because productivity is usually a big part of growth.)
It's guesswork. To resolve these problems, economists often assume that present trends will continue. It's a reasonable, if timid, response. Still, it ignores the prospect of a dramatic break from the present. Trump's economic assumptions are optimistic and self-serving. But they are not impossible.
Yet, even if Trump's 3 percent growth materializes, it won't suffice. His objective is to balance the budget by 2027. On paper, faster growth does that. But the underlying assumptions of government spending over the decade are unrealistic. Trump would cut spending on defense and domestic "discretionary" programs (justice, regulation etc.) by half, as a share of the economy. This won't happen -- and shouldn't.
Here is the debate's larger significance: We can no longer grow our way out of serious conflicts, if we ever could. There isn't enough money to satisfy all our demands, even at higher rates of economic growth. There will be conflicts between private and governmental spending; between national and local spending; between health spending and non-health spending; and between spending on the old versus the young. The present is contentious; the future may be worse.
(c) 2017, The Washington Post Writers Group