Office of Management and Budget Director Mick Mulvaney had a Wall Street Journal column highlighting the benefits of “MAGAnomics.” The piece can best be described as a combination of Groundhog Day and outright lies.
In terms of Groundhog Day, we have actually tried MAGAnomics twice before and it didn’t work. We had huge cuts in taxes and regulation under both President Reagan and George W. Bush. In neither case, was there any huge uptick in growth and investment. In fact, the Bush years were striking for the weak growth in the economy and especially the labor market. We saw what was at the time the longest period without net job growth since the Great Depression. And of course, his policy of giving finance free rein gave us the housing bubble and the Great Recession.
The story of the 1980s was somewhat better but hardly follows the MAGAnomics script. The economy did bounce back in 1983, following a steep recession in 1981-1982. That is generally what economies do following steep recessions that were not caused by collapsed asset bubbles. Furthermore, the bounceback was based on increased consumption, not investment as the MAGAnomics folks claim. In fact, investment in the late 1980s fell to extraordinarily low levels. It is also worth pointing out that following both tax cuts, the deficit exploded, just as conventional economics predicts.
By contrast, Clinton raised taxes in 1993 and the economy subsequently soared. It would be silly to attribute the strong growth of the 1990s to the Clinton tax increase; other factors like an IT driven productivity boom and the stock bubble were the key factors, but obviously, the tax increase did not prevent strong growth.
The outright lies part stem from the comparison to prior periods’ growth rates. Mulvaney notes that the 2.0 percent growth rate projected for the next decade is markedly lower than the 3.5 percent rate that we had seen for most of the post-World War II era.This comparison doesn’t make sense.
We are now seeing very slow labor force growth due to the retirement of the baby boom cohort and the fact that the secular rise in the female labor force participation rate is largely at an end. MAGAnomics can do nothing about either of these facts. Slower labor force growth translates into slower overall growth.
Mulvaney also complains about government benefits keeping people from working. The idea that large numbers of people aren’t working because of the generosity of welfare benefits shows a startling degree of ignorance. The United States has the least generous welfare state of any wealthy country, yet we also have among the lowest labor force participation rates. The idea that we will get any substantial boost to the labor force from gutting benefits further is absurd on its face.
Mulvaney apparently missed the fact that energy prices have plummeted in the last three years. Oil had been over $100 a barrel, today it is less than $50. While it is always possible that it could fall still further, any boost to the economy from further declines will be trivial compared to what we have seen already. It would be amazing if Mulvaney was ignorant of the recent path in energy prices.
In short, there is nothing here at all. Mulvaney has given us absolutely zero reason that Trump’s policies will lead to anything other than larger deficits, fewer people with health care, more dangerous workplaces, and a dirtier environment.