03-01-2017, 01:48 PM
Tax cuts, deregulation, the usual rightwing reflationary package will work it's magic, right? Businesses were short of funds (despite record profits, record low interest rates, record low cash balances) and will invest immediately as the tax cuts lowers the cost of capital despite lots of evidence that investment isn't very sensitive to the cost of capital.
Then of course there will be skilled workers available, the Fed will not increase rates, bond yields will stay low forever, the dollar won't rise, inflation won't rise, etc.
The same policy mix didn't increase business investment in the 1980s (despite a much favorable environment of interest rates coming down rapidly) and it didn't increase in the 2000s after the Bush tax cuts either. Business investment also didn't decline after the Clinton tax increases in the 1990s.
The simple truth is that growth can only increase if either the labor force and/or productivity increases. At present, those factors combined point to less than 2% growth (see figure below). Trump's immigration/deportation policies will make the labor force growth worse, not better, and policies to increase productivity growth, insofar as they're successful, take years to gain traction as they need business investment to increase substantially.
Then of course there will be skilled workers available, the Fed will not increase rates, bond yields will stay low forever, the dollar won't rise, inflation won't rise, etc.
The same policy mix didn't increase business investment in the 1980s (despite a much favorable environment of interest rates coming down rapidly) and it didn't increase in the 2000s after the Bush tax cuts either. Business investment also didn't decline after the Clinton tax increases in the 1990s.
The simple truth is that growth can only increase if either the labor force and/or productivity increases. At present, those factors combined point to less than 2% growth (see figure below). Trump's immigration/deportation policies will make the labor force growth worse, not better, and policies to increase productivity growth, insofar as they're successful, take years to gain traction as they need business investment to increase substantially.