I would be remiss if I didn’t mention this article at the New York Times critiquing the claim that task cuts by the Trump Administration have resulted in faster economic growth. In summary while companies used some of their tax cuts to expand R&D, make other investments, or give bonuses to employees, a lot went to stock buybacks and executive bonuses.
My only real criticism of the article is that it intermingles the effects of the cut in the corporate tax rate with those of the cut in the personal tax rate too freely. The cut in the corporate tax rate did not create an increased federal fiscal deficit in any meaningful way. The most significant factors in the federal deficit are increased health care spending and the cuts in the personal income tax.
I supported cutting the corporate income tax. It should have been cut to zero. Companies spend billions or even tens of billions on tax avoidance and every dollar is a waste. If you insist on balancing the budget but won’t cut spending, do so by cutting the corporate tax rate and increasing the personal income tax rate to make up the difference.
IMO the most important thing about the present low unemployment rate with faster growth is that it exists. The Obama Administration signalled its willingness to accept slow growth multiple times. It was a recurring theme, sounded, for example, by the president in a 2010 60 Minutes interview and again in the administration’s 2013 budget: the “new normal” was one of high unemployment and slow growth.
The Obama Administration never achieved 3% growth let alone 4% growth.
Whether you think lower unemployment and faster growth was due to the efforts of the Obama Administration, was inevitable, or was a consequence of various actions of the Trump Administration, that we have low unemployment and faster growth are facts. It puts the lie to the view that we can no longer have low unemployment and growth faster. That should be a factor in future policy and politics.
Should see the growth sustained before we celebrate it as the new normal, and keep in mind that it is deficit financed.
Rinehart and Rogoff predicted, based upon historical norms, 5-8 years of slow growth after an international banking crisis, maybe faster growth should be expected now. Should be some pent up demand. Still, I don’t see how this is much more than temporary with our increased investment.
Steve
It should not be possible to increase productive capacity using Keynesian stimulus, only make use of existing capacity. If we’re expanding AS through deficit spending, Keynes was wrong.
I’m a Keynesian. In the short term we should be able to make up a shortfall in AD through deficit-financed stimulus. But not in the long term. A decade is not the short term by any stretch of the imagination. By now the economy should have changed structurally.
I think we are out of Keynesian territory. We don’t have a history of fiscal stimulus at a time when the economy was already doing very well. I haven’t really commented all that much on the expected effects of the tax cuts since we don’t have much experience with doing this.
Steve
I agree. In fact that’s my point. Stimulus should not produce growth unless there is still productive capacity in the economy. If that’s the case, the Obama Administration was wrong. If that isn’t the case, we are left without an explanation of why the economy continues to expand.
“Folk Keynesianism”, which is what most promote including many economists, says that if you provide fiscal stimulus it will create economic growth.