From the New York Sun
By LAWRENCE KUDLOW
Virtually the whole world is beating up on the Trump administration for daring to predict that low marginal tax rates, regulatory rollbacks, and the repeal of Obamacare will generate in the years ahead economic growth of between 3% and 3.5%.
In a CNBC interview last week, Treasury Secretary Mnuchin held the line on this forecast. He also argued the need for dynamic budget scoring to capture the effects of faster growth. Good for him.
What’s so interesting about all the economic-growth naysaying today is that President Obama’s first budget forecast roughly eight years ago was much rosier than Mr. Trump’s. There was nary a peep of criticism from the mainstream press outlets and the consensus of economists.
Strategas Research Partners policy analyst Dan Clifton printed up a chart of the Obama plan that predicted real economic growth of roughly 3% in 2010, near 4% in 2011, more than 4% in 2012, and nearly 4% in 2013.
It turned out, though, that actual growth ran below 2% during this period. Was there any howling about this result among the economic consensus? Of course not. It seems they’ve saved all their grumbling for the Trump forecast today.
The Obama policy, moreover, failed to include a single economic-growth incentive. Not one. Instead, there was a massive $850 billion so-called spending stimulus (whatever became of those spending multipliers?), a bunch of public-works programs that never got off the ground, and finally Obamacare, which really was a giant tax increase.
Remember when Chief Justice John Roberts ruled that the health-care mandate was in fact a tax? But it wasn’t just a tax. It was a tax hike. And added to that were an 3.8% investment tax hike, a proposed tax hike on so-called Cadillac insurance plans, and yet another tax increase on medical equipment.
So eight years ago tax-and-spend was perfectly okay. And the projection that it would produce a 4% rate perfectly satisfied the economic consensus.
Make sense? No, it does not.
So here’s President Trump reaching back through history for a common-sense growth policy that worked in the 1960s, when JFK slashed marginal tax rates on individuals and corporations, and again in the 1980s, when Ronald Reagan slashed tax rates across-the-board and sparked a two-decade boom of roughly 4% real annual growth.
Even so, the economic consensus won’t buy Trump’s plan.
One after another, Trump critics argue that because we’ve had 2% growth over the past ten years or so, we are doomed to continue that forever. This is nonsense.
Most of the Trump critics point to the decline in productivity over the past 15 years. They say, unless productivity jumps to 2.5% or so, and unless labor-force participation rises, we can’t possibly have 3% or 4% growth.
Stanford University economics professor John Taylor, who’s also a research fellow at the Hoover Institution and one of the nation’s top academic economists, has charted how productivity declines can be followed by productivity increases, which unfortunately can be followed again by productivity declines.
In his widely read blog, Economics One, Taylor writes, “Take off the muzzle and the economy will roar.” He notes that bad economic policy leads to slumping productivity, living standards, real wages, and growth.
“Huge swings in productivity growth in recent years,” Professor Taylor writes, “are closely related to shifts in economic policy, and economic theory indicates that the relationship is causal.”
He concludes, “To turn the economy around we need to take the muzzle off, and that means regulatory reform, tax reform, budget reform, and monetary reform.”
Well, aren’t those exactly the reforms that President Trump is promoting?
Get rid of the state-sponsored barriers to growth. Then watch how these common-sense incentive-minded policies turn rosy scenario into economic reality.