The Trump Effect – Releasing Pent Up Growth

For over a decade, U.S. economic growth has averaged 1.8%.

President Trump said his policies would result in growth above 3%.  Many on the Left think the U.S. economy can no longer grow at that rate – citing the claim that our”mature” economy cannot reach such growth rates in addition to numerous “technical” arguments.

So, who is right?  Can the U.S. economy grow at 3%?

According to the  Congressional Budget Office:

“The CBO found that Trump’s budget would only mildly improve economic growth. The average economic growth rate would rise by 0.1 percentage points per year, from about 1.8 percent to 1.9 percent.” Admittedly, that is a long term growth forecast.  Yet, almost no one on the Left or in the CBO thought 3% growth was possible this year.

Yet, in two of the three quarters this year, economic growth already has hit 3%.

Now we read that:  “The Federal Reserve Bank of New York on Friday forecast that gross domestic product will rise 3.8% in the fourth quarter, up from a forecast of 3.2% a week earlier. A separate measure from the Federal Reserve Bank of Atlanta forecast 3.4% growth last week.”

Why is this happening contrary to the dour forecasts of so many?

The answer is that Trump is benefitting from (a) his overall policies that ended the Obama’s Administration’s hostility toward American business, (b) his aggressive deregulatory policies, and (c) the promise of tax reform.  Those three dynamics have been matched up with years of an underperforming economy, which economies historically have pent up demand/growth within them.

For instance, after the 1920’s tax cuts, the economy jumped out of the gate and achieved over 11% growth.  While growth so high won’t happen if the Republicans pass tax reform, significantly higher growth than 1.8% is chomping at the bit.

In other words, the naysayers are wrong again – now it is up to Republicans in Congress to really unleash the pent up demand and growth. Of course, growth is the most important economic statistic because it is the indicator of real job and wage growth.