Almost exactly a year ago, I suggested a rule of thumb for evaluating candidates’ economic agendas: The more growth a politician promises, the worse his or her economic plan probably is.
Why? Because it suggests they had to make extra-rosy assumptions to get their math to work.
Supercharged growth implies higher tax revenue, as well as lower spending on means-tested programs such as Medicaid and unemployment insurance. As a result, astronomical economic growth is often used to paper over the astronomically large deficits that would result under more realistic assumptions.
As President Trump assembles his fiscal agenda, that rule of thumb is coming in handy once again.
Astonishingly, the White House still hasn’t released details for any of the major economic initiatives Trump promised during the campaign (a “terrific” Obamacare replacement, a top-to-bottom tax overhaul, massive infrastructure investment). But thanks to recent leaks about the administration’s economic book-cooking, we at least know that whatever Trump ultimately proposes will be very, very expensive.
After the election, the Trump transition team began the long, arduous process of putting together the presidential budget. As is always the case, it worked with the (non-political) career staffers at the Council of Economic Advisers.
Normally this process starts by asking the CEA staff to estimate baseline economic growth under current policies. These professionals then build on this baseline to forecast how the president’s proposals will affect the overall economy, as well as budget deficits.
The end results are often more optimistic than what independent forecasters predict — the White House is factoring in new policies it believes are pro-growth, after all — but not wildly so. The numbers still need to be credible.
Like I said, that’s how things normally work. Not this time around.
As the Wall Street Journal first reported (and as I’ve independently confirmed through my own sources), the Trump transition team instead ordered CEA staffers to predict sustained economic growth of 3 to 3.5 percent. The staffers were then directed to backfill all the other numbers in their models to produce these growth rates.
Set aside for a moment the sheer intellectual dishonesty of this approach. Let me first offer context for how nutty such a forecast would be.
Inflation-adjusted economic growth over the past decade has been under 2 percent. And independent projections for the coming decade are equally lackluster, thanks in part to population aging. The Federal Reserve, the nonpartisan Congressional Budget Office and private forecasters predict about 1.8 to 1.9 percent annual growth.
In other words, based on nothing but expediency, the Trump team prophesies growth that’s more than a full percentage point higher than almost anyone else expects.
Even conservative economists who believe that a tax-cutting, deregulatory agenda will unleash pent-up growth must find Trump’s forecasts-by-fiat hard to swallow.
On an American Economic Association panel last month, Columbia Business School dean Glenn Hubbard — who chaired George W. Bush’s Council of Economic Advisers and advised the presidential campaigns of Mitt Romney and Jeb Bush — discussed the consequences of Trump’s agenda. He estimated that “reasonable or upper-bound estimates” for sustained economic growth would be about 2.75 percent. And to be clear, many economists find even that prediction Pollyannaish.
During the campaign, Trump made no secret of his disdain for experts, economic or otherwise. He has since doubled down on this view by demoting the CEA chair from his Cabinet. Not that the demotion really matters at this point; a month into his presidency, Trump hasn’t named a single political appointee to the council.
Given this recent Argentine-style data manipulation decree, perhaps no one respectable is willing to take the job.
Trump and his team have likewise openly disparaged federal statistics. He has called the unemployment rate “phony” and “a total fiction.” The administration is also reportedly trying to manipulate the official trade statistics.
In fairness, Trump is not the first politician to engage in voodoo economics or monkey with growth forecasts to make his own proposals look better.
During the 2016 presidential campaign, lots of Republican candidates and at least one Democratic candidate inflated their gross domestic product forecasts to make themselves appear less fiscally irresponsible. “Rosy Scenario” was also known to haunt the Reagan White House.
Of course, there are also risks to overpromising on growth — or on jobs, deficits, health-care affordability, trade or any other front on which Trump has pledged to repeal the laws of economics. That is, voters might remember your promises and punish you when you don’t deliver. Maybe Team Trump is counting on being able to backfill voter memories, too.