Sunday, August 13, 2017

Trump's 4% growth target

Trump apparently wussed out, abandoning his 4% target for economic growth and embracing 3%. I read a couple things ridiculing him at 3%, as if even that is too high a target. Absurd.

Myself, I'd hold Trump to his original target: 4%. We can get there. Even if we don't make it, shooting for 4% is a much more honorable goal than shooting for 3%. And far more impressive, if we make it.

Back in January 2017, Menzie Chinn of EconBrowser looked at Trump's growth target. Quoting from the economy page of the Trump-Pence website, Chinn echoes

Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate.

The Trump-Pence link today reports a "page not found" error. Wuss.

Anyway, Menzie points out that reaching Trump's growth target will require a large increase in the size of the labor force or in labor productivity, or both. Unrealistically large, Chinn implies. He says

it seems unlikely to have acceleration of growth to the indicated rates, especially if policies are undertaken to deport some portion of the population


If we are deporting undocumented workers en masse, how is [the labor force] going to be expanded?

It's a fair question.

At Forbes (21 Jan 2017) Adam Ozimek said

If you look over the long-term, the employment to population rate falls during recessions then slowly recovers. So if we can avoid a recession, it's not crazy to think we could get back to 2000 levels.

Ozimek continues:

That means going from 78.2% today to 81.9%, an increase of 3.7 percentage points. If you apply this to the 125 million population, that's about 4.6 million jobs. If these jobs take the whole four years of the Trump administration to recover, that's 95,000 jobs a month above and beyond the natural growth in the labor force. When you add in that natural labor force growth, that should be enough to keep job growth in the range from the last three months, which has averaged 165,000.

That was January. Job growth in June 2017 surged "as employers surpassed the expectations of most economists by adding 222,000 jobs."

As that kind of job growth continues, Trump's 4% becomes more likely.

At FiveThirtyEight (4 August 2017) Ben Casselman writes:

Meanwhile, the U.S. doesn’t seem to be running out of available workers, at least not yet. Rather, the improving job market seems to be drawing people off the economy’s sidelines. The labor force grew by 349,000 people in July; the so-called participation rate — the share of adults who are either working or actively looking for work — has been essentially flat for the past year and a half. That’s an impressive trend given the ongoing retirement of the baby boom generation, which puts downward pressure on the participation rate.

Things are happening in the labor force.

// Related: You don't just show a graph and assume that the trend it shows will continue forever


The Arthurian said...

Josh Lehner, at the Oregon Office of Economic Analysis, asks: Labor Supply, How Much More? Lehner writes:

"If Oregon is to see stronger labor force growth, or labor supply, it will have to come from some combination of faster population growth and/or higher labor force participation rates among Oregonians. The question is: will we get it? ...
Our baseline outlook says the slower job growth we’ve seen in the past year is here to stay and much of the participation gains have played out... [H]owever there is upside risk here too. Job growth, labor force participation, and population growth can all come in better than we expect..."

And from his summary:

"While our office expects the slower job growth to continue, it does not mean the numbers cannot come in better than we expect. Some slack remains. Should a stronger economy pull more workers back into the labor force it would be great news."

The Arthurian said...

At CNBC: "Trump's hope for 3% growth no longer looks so far-fetched"

And of course they attribute any improvement to President Trump, not to the slow debt growth of the past ten years making faster debt growth now a possibility again.

The Arthurian said...

Menzie points out that reaching Trump's growth target will require a large increase in the size of the labor force or in labor productivity, or both.

Dean Baker: "While the 4.1 percent unemployment rate is low by the standards of the last 45 years, it is worth noting that other major economies (e.g. Japan and Germany) now have far lower unemployment rates than almost any economist thought plausible just four or five years ago. I don't see any reason to believe that the US unemployment rate can't fall to 3.5 percent, and possibly even lower, without kicking off an inflationary spiral."

The Arthurian said...

John Taylor, September 12, 2015:
"Andy Atkeson, Lee Ohanian and Bill Simon recently published a nicely-reasoned article about why the US economy can achieve 4% growth."

The Arthurian said...

From St. Louis Fed's Bullard Discusses R-Star: The Natural Real Rate of Interest:
"Regarding the regimes for U.S. labor force growth, he [Bullard] noted that since the financial crisis, the growth rate has been 0.46 percent. This compares with a higher growth rate of 1.33 percent before the financial crisis."