One aspect of Trump’s economic plan has evoked doubt and consternation. The plan depends upon achieving 3% annual GDP growth by 2021 in order to offset its cost. Most academics believe that this simply can’t happen. But here’s a relevant statistic. In the 70 years since the end of WWII, average GDP growth rate was about 2.9%. So why the skepticism?
The argument given, mostly by progressive economists, is twofold. First, population growth was a major factor in the historical GDP trend, but this growth is now slowing significantly. And second, there are new impediments to growth resulting from government policy over the last few decades.
My thoughts are as follows. The population growth slowdown may be offset by gains from automation, robotics and AI. As I have argued before, we simply don’t need “busy hands” as much anymore, and this trend is increasing rapidly. Since I wrote, quite unexpectedly, there have even been inroads in some labor-intensive segments of the industrial farming economy. Even picking delicate fruit evidently can be effectively automated. Of course, whether this technological impact will be sufficient by 2021 is unclear, but no one can say it is impossible.
Secondly, the structural impediments in our economy are a self-imposed constraint. We could release some of them, and in fact that is a major part of the Trump agenda. These include undoing many regulations on business activity, freeing resource exploitation from some environmental protections, removing some constraints on the flow of capital, and so on. However, this entails significant risk because these impediments have benefits through engendering a safer and more stable economy. So it isn’t clear to me that this is a sensible course of action. Nevertheless, I am not so sure that following this path couldn’t restore the historical growth that built us into the dominant world power after WWII.
Thus, dismissing Trump’s plan in this way is a mistake. It is quite possible that we could achieve this ambitious goal if we are willing to accept concomitant risks. What the skeptics really mean is that it can’t be achieved safely. That isn’t the same thing as feasibility, and not speaking clearly on this topic is a serious rhetorical mistake. The real question is not whether 3% GDP growth is feasible but rather whether it is desirable, given what we must do to achieve it.