Hopes of Trump-o-nomics versus slow-growth reality
Anisur Rahman
AFP, WASHINGTON: President Donald Trumps economic and tax agenda assume growth in the worlds largest economy will see a sustained rebound to double the current rate. But analysts are casting doubt on that goal given the current tepid pace of the American economic expansion, as well as limitations on the potential to fuel growthespecially without also igniting inflation.
While the Commerce Department on Friday revised the estimate of first quarter growth up by a hearty half-point to 1.2 per cent , that is still well below the 2.1 per cent in the final quarter of 2016.
First quarters are generally slower than the rest of the year, and consumption in the January-March period while doubling to 0.6 per cent growth, was still at its lowest point since the end of 2009.
Business investments were stronger, thanks in no small part to a stunning 28.4 per cent spike in spending on structures, like oil wells and mines, a sector the Trump administration hopes to boost.
But Trump-o-nomics is founded on the belief that growth will hit three per cent and stay there for a decade.
Indeed, this assumption underlies the Trump administrations recent fiscal plans.
Economists do expect growth to pick up in the second quarter, with the Atlanta Federal Reserve Banks nowcast on Friday predicting expansion at an annual rate of 3.7 per cent .
Second quarter growth could be in the three per cent range, but that would still only mean the first half growth rate was not much more than two per cent , economist Joel Naroff wrote in a research note.
If the economy is going to grow at three per cent for as long as the eye can see, businesses better spend lots of money on capital goods, he continued.
The Trump administration expects to goose the economy by slashing taxes and regulations and favoring exports.
Ive heard lots of economists tell us why thats not going to be the case, Treasury Secretary Steven Mnuchin said Thursday in Senate testimony.
But we are committed to having policies to get us back to what are appropriate growth rates in this country.
Still, history does not help his case: on average since 2000, annual growth in the United States has not exceeded two per cent , thanks to the Great Recession of 2008-2009, sluggish productivity growth and an aging population.
And the problem of an older population cannot improve if Trump continues to pursue the harsh immigration practices he campaigned on.
Over the period since 1947, annual growth averages 3.2 per cent. Mnuchin was put on the defensive in a recent Congressional hearing by Democrats who faulted the math in the draft budget released last week.
Some vigorously derided the administrations double counting of growth projections.
Mnuchin repeated the White House position that the tax cuts will finance themselves without increasing the deficit thanks to higher economic growth which in turn will be generated by the tax cuts.
