Trump Is More Optimistic Than Reagan, and That’s Not Good
His budget assumes 3% growth and includes a basic math error.
President Trump has outdone Ronald Reagan in at least one respect: unrealistically rosy forecasts for economic growth. In 1981, President Reagan’s first budget predicted growth well above the consensus of private forecasters, in a bid to justify large tax cuts and increased defense spending. When the promised growth did not materialize, the deficit and debt ballooned.
Now Mr. Trump is leading the economy down a primrose path that is even more unrealistic.
.. There are two components to economic growth: adding more workers and increasing their productivity. Faster growth in the 1980s was the result of the former, an expanding workforce driven by two irreproducible demographic factors: the baby boomers’ entering their prime working years, and women’s continuing influx into the workforce.
.. Today the baby boomers are hitting retirement. As a result, Reagan-era productivity gains of 1.6% a year would now generate economic growth of only 1.7%.
.. driving growth up to or above 3%. But it is not very likely. My simulations, based on historical data, suggest a 1 in 25 chance of hitting this target over the next decade.
.. the budget effectively double-counts the tax cut’s economic effect—using it once to pay for the tax cut itself and a second time to boost revenue by $2.2 trillion, so as to show a lower projected path for the deficit.