by Robert Carbery
The Trump administration is pushing to get us back to 3% or maybe even 4% growth year after year. The U.S. has been stuck in so-so growth during the Obama years – 2.1% GDP growth per quarter on average as the previous administration ignored the free market for big government solutions.
But our new president is going to make our economy great again. Right?
Treasury Secretary Steven Mnuchin is even more ambitious than the POTUS. He has a framed news article in his office of Trump announcing him as his Cabinet pick and a signed note from Mr. Trump which reads “5% GDP.” How we get there is anyone’s guess. With future plans for significant tax cuts, many believe the deficits will rise in the coming quarters. However, Mr. Mnuchin stated, “The plan will pay for itself with growth.”
An overly optimistic tone from the President and Treasury Secretary is nothing new but this kind of hope for a more prosperous economy for all Americans is quite ambitious.
And there is quite a lot standing in their way.
The labor force has been slow to adapt to today’s economy. Over the past decade, the population aged 25 to 54, known as the prime age, has been growing at just 0.1% per year. During the booming times of the 1980s, this prime age population expanded at a 2.2% rate.
Labor force participation rates have flattened in recent years for women and men’s rates have actually declined. Without the needed growth coming from added employment, the economy will have to be much more productive with the workers it does have to get back to 3% a year. Unfortunately, workers have not been increasing productivity at any kind of rate that would close the gap.
The economy is at “full employment,” according to many economists, with unemployment at 4.4% though many are still not fully employed to their potential or are not participating in the economy at all. So there is still some room for growth with the current labor force we have. Too bad low birthrates and an aging population are working against the Trump administration, pointing to perhaps immigration as the source of the work force’s net increase, though that is unlikely to happen given the current policies proposed by the law and order president.
Early signs of a rebound after the dismal first quarter are promising. U.S. retail sales grew 0.4% in April, the largest gain for the year while consumer confidence rebounded. Also, industrial production kicked into high gear in April as output jumped 1%, the largest gain in three years.
STEVEN MNUCHIN: WORKING WITH TRUMP TO BRING 3% GROWTH
Are economists correct in saying that smart tax cuts and slashing regulations could deliver 3% growth for a year or two? That could be. But a crash and subsequent recession are coming and Trump will likely be president during it. We still have a chance to change the game though.
Will the repeal of Dodd Frank regulations on the banking sector be enough of a boost to get us back to that 3% mark?
In late April, Rep. Jeb Hensarling launched legislation called the Financial Choice Act, which would ensure that big banks can no longer rely on taxpayer bailouts. The bill offers banks a choice: significantly increase its emergency cash on hand and enjoy broad deregulation of Obama-era rules and regulations, or don’t… which many industry experts say banks will choose due to the pricey nature of increasing its cash reserves.
The 2010 Dodd Frank law ended up helping big Wall Street banks while crushing the many smaller community banks that had nothing to do with the financial crisis.
“We were told it would lift our economy, but instead we are stuck in the slowest, weakest, most tepid recovery in the history of the republic,” Hensarling said of Dodd Frank. “We have seen millions who remain unemployed and underemployed and an economy working at roughly half of its potential.” Will the Financial Choice Act unleash the markets after lifting the many burdensome regulations on the financial services industry?
Whatever happens, things need to change drastically from the Obama economy. Tax cuts, deregulation, and getting America back to work are the three pillars of nudging this great country back to the growth it is more than capable of.
by Robert Carbery