We can go above the speed limit for a bit and below it for a bit. But over time, we stick to something near the speed limit. And the consensus estimate right now is that our speed limit is about 2.5-3 percent. Pawlenty’s promised 5 percent is almost double that. Alan Blinder, a former vice chairman of the Federal Reserve, ran the numbers for me. “Trend growth is three percent or so,” he wrote in an e-mail. “Five percent growth would be two percentage points higher, which should cut the unemployment rate by about one percentage point per year. So after 10 years, it will have fallen from nine percent to minus-one percent. Nice trick!”
Paul Ryan was (rightly) mocked for releasing his budget alongside projections that said it would drive unemployment down to 2.8 percent. But compared with Pawlenty’s promise, Ryan was being downright pessimistic. What does minus-one percent unemployment even look like? Is it a function of everyone having a job, and then a few people having second jobs? Perhaps it relates to ghosts or robots? It’s hard to say.
But it’s not going to happen. “The trend growth rate is not going to be 5% in the United States,” Douglas Holtz-Eakin, director of the CBO under President Bush and a top GOP adviser, told Benjy Sarlin of Talking Points Memo. “The market just doesn’t support that.”
And it’s not just the market that doesn’t support it. Government policy — which Pawlenty seems oddly confident in — can’t do it, either. Chris Varvares, an economist at Macroeconomic Advisors, was quite clear on this point: “Government policy can’t do much,” he told me. “Doing all the right things can help around the margins, but I don’t know anyone who thinks the gains would be more than several tenths of a percentage point. An outer bound might be as high as a percentage point.”
That creates some big problems for Pawlenty, though. He’s relying on “five percent economic growth over 10 years” to reduce our budget deficit by 40 percent. And if he doesn’t get it? The most respected tax models suggest his tax cuts will cost $7.8 trillion — and that’s on top of the $2.5 trillion that extending the Bush tax cuts will cost. Even if Pawlenty does cap federal spending at 18 percent of GDP, that’d still leave him $8.4 trillion short of a balanced budget. “Given that reality, he can either embrace a huge middle-class tax increase, or give up his claims to a balanced budget,” writes Michael Linden, an economist at the Center for American Progress. “If he doesn’t make up that revenue, deficits and debt will skyrocket, even if he does slash spending back to levels not seen in half a century.”
Let me be clear: If there’s any presidential candidate out there who can force the unemployment rate below zero and cut the deficit by 40 percent before we need to make a single spending cut, he or she has got my vote. But there isn’t. There’s just a presidential candidate saying he can do these things and hoping voters don’t look closely enough at the numbers to call him on it.