Thanks to the director of the Office of Management and Budget Mick Mulvaney we learned a new word: MAGAnomics. Mulvaney addressed the Trump administration’s economic vision for the U.S. in the Wall Street Journal.
He wrote “If the Trump administration has one overarching goal, it’s to make America great again. But what does this mean? It means we are promoting MAGAnomics — and that means sustained 3 percent economic growth.”
On her second day of the testimony Federal Reserve Chair Janet Yellen was asked what it would take to get the economy to grow at 3 percent. She said she thinks it would be wonderful thing “if you could accomplish it” adding, ” I’d love to see it. I think it’s challenging.”
Lately, the U.S. growth rate was 1.2 percent. That did not stop Mulvaney from explaining the plan for how the Trump administration would get to 3 percent growth. First item on the list is tax reform.
“When businesses invest in new plants and equipment, they tend to hire more people, who produce more. Lower tax rates and faster cost recovery are two levers that will reduce the cost of capital and thereby help ignite economic growth,” Mulvaney wrote.
This would be true if there wasn’t for a fact that the money companies could economize thanks to lower tax rates are unlikely to be reinvested.
According to the law professor at Cornell Law School they are likely to line the pockets of investors instead.
“Unfortunately, raising corporate profits by cutting corporate taxes is unlikely to result in a lot of corporate reinvestment in the current environment,” she said. “Perhaps the biggest obstacle to significant corporate reinvestment is not the absence of money but the pressures that are driving companies to return that money to shareholders in the form of dividends and share repurchases in order to keep the stock price high instead of reinvesting it.
The Trump administration is hoping to solve the problem of productivity by helping increase capital investment.
They should also try to solve the mystery of America’s low wages said Abigail Wozniak, an associate professor of economics at Notre Dame and a former staffer on the Obama White House Council of Economic Advisers.
“The administration is completely right to point out that productivity growth has been slowing, but it’s a really big puzzle right now why even the productivity growth that we do have is not translating into equivalent wage growth for workers,” Wozniak said. “What’s been happening for the last 30 years would suggest that even if we meet those productivity growth targets, we are not going to see equivalent wage growth for workers.”
The MAGAnomics includes cutting government waste, rebuilding of America’s infrastructure, cutting government waste, welfare reform and getting rid of unnecessary regulation. It also advocates for a new energy strategy.
“The president’s ‘all of the above’ energy strategy expands the economy’s growth potential,” Mulvaney wrote. “Yes, it puts coal miners back to work. But cheaper, cleaner, more abundant energy will also increase investment and employment across dozens of industries, from chemicals to automobiles.”
The problem is that it it also translates into cuts in spending on programs that have goal to make us less dependent on fossil fuels like gas and coal.
“The budget that the Trump administration has proposed for this fiscal year would involve pretty substantial cuts to energy investment programs at the U.S. Department of Energy, which invests in the next generation of cheaper, cleaner, more abundant energy technologies and resources,” said Jesse Jenkins, a researcher at the Massachusetts Institute of Technology.
The Congressional Budget Office came out with its analysis of the administration’s budget few hours after Mulvaney’s text was published. It said it would boost economic growth one-tenth of one percentage point more that the CBO’s current baseline estimate.