The word of the day today comes to us courtesy of Mick Mulvaney, the director of the Office of Management and Budget. The word is: MAGAnomics.
Mulvaney wrote about the Trump administration's economic vision for this country on the op-ed page of the Wall Street Journal today.
“If the Trump administration has one overarching goal, it's to make America great again. But what does this mean? It means we are promoting MAGAnomics — and that means sustained 3 percent economic growth,” Mulvaney wrote.
There's lots to unpack here.
Let’s start with the 3 percent economic growth.
Federal Reserve Chair Janet Yellen was on Capitol Hill today for the second part of her two-day testimony when she was asked by Tennessee Republican Bob Corker about what it would take to get the economy to grow at 3 percent.
"I think it's something that would be wonderful if you could accomplish it. I'd love to see it. I think it's challenging,” Yellen said.
Most recently, the U.S. growth rate was 1.2 percent. That has, of course, not stopped Mulvaney from laying out a plan for how the Trump administration would get from 1.2 percent to 3 percent growth. The No. 1 item? Tax reform.
“When businesses invest in new plants and equipment, they tend to hire more people, who produce more. Lower tax rates and faster cost recovery are two levers that will reduce the cost of capital and thereby help ignite economic growth,” Mulvaney wrote.
That could be true, except for the fact that the money companies could save thanks to lower tax rates are unlikely to be reinvested. Instead, they are likely to line the pockets of investors, according to Lynn Stout, a law professor at Cornell Law School.
“Unfortunately, raising corporate profits by cutting corporate taxes is unlikely to result in a lot of corporate reinvestment in the current environment,” she said. “Perhaps the biggest obstacle to significant corporate reinvestment is not the absence of money but the pressures that are driving companies to return that money to shareholders in the form of dividends and share repurchases in order to keep the stock price high instead of reinvesting it.”
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Productivity and wages
By helping increase capital investment, the Trump administration is hoping to solve one of the greatest economic conundrums of our time: productivity.
While they tackle that, they should also try to figure out the mystery of America’s low wages, according to Abigail Wozniak, an associate professor of economics at Notre Dame and a former staffer on the Obama White House Council of Economic Advisers.
“The administration is completely right to point out that productivity growth has been slowing, but it's a really big puzzle right now why even the productivity growth that we do have is not translating into equivalent wage growth for workers,” Wozniak said. “What's been happening for the last 30 years would suggest that even if we meet those productivity growth targets, we are not going to see equivalent wage growth for workers.”
The MAGAnomics plan would also include rebuilding of America’s infrastructure, cutting government waste, welfare reform and getting rid of unnecessary regulation. It also calls for a new energy strategy,
“The president’s 'all of the above' energy strategy expands the economy’s growth potential,” Mulvaney wrote. “Yes, it puts coal miners back to work. But cheaper, cleaner, more abundant energy will also increase investment and employment across dozens of industries, from chemicals to automobiles.”
That sounds great, except that it also translates into cuts in spending on programs that aim to make us less dependent on fossil fuels like gas and coal.
“The budget that the Trump administration has proposed for this fiscal year would involve pretty substantial cuts to energy investment programs at the U.S. Department of Energy, which invests in the next generation of cheaper, cleaner, more abundant energy technologies and resources,” said Jesse Jenkins, a researcher at the Massachusetts Institute of Technology.
Hours after Mulvaney’s op-ed was published, the Congressional Budget Office came out with its analysis of the administration's budget. The CBO said it would boost economic growth one-tenth of one percentage point more that the CBO's current baseline estimate.
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