US Treasury Secretary, Steve Mnuchin claims that President Trump's economic policies will double growth in the US economy, is that right?Steve Mnuchin, Goldman Sachs alumni, and now the US Treasury Secretary, has predicted that US growth in 2017 will be double the 2016 level, rising from 1.6 per cent to 3.0 per cent - which is not quite double, but let's not be picky.
US growth may indeed hit that level this year, certainly recent purchasing managers’ indexes, released so far this year, point to a reasonably rapid growth rate. But it's a bit, shall we say, naughty to say that this is down to the policies of President Trump. The cause and effect relationship between economic policies and economic growth has an awful lot of time lags built into it.
President Trump tweeted in frustration that US debt fell in the first month of his presidency but rose in Obama's first month, yet the press made no mention of it. The President did in fact make a factually accurate point, but one that is of no relevance. US debt rose during the early days of Obama because the US economy was recovering from the crisis of 2008, no other explanation is required.
History tells us that economies tend to see above average growth when recovering from an economic downturn, but this time around because of the ferocity of the 2008 crisis and related issues, the recovery has taken much longer to gain momentum.
So, if the US does grow at 3.0 per cent this year, it does not really prove anything.
But maybe there are reasons to think that Trumponomics may support growth. Alas, there are reasons to think it may have a negative effect too. The differences lie in timing.
In the shorter term, maybe this year, but 2018 more likely, some form of animal spirits, at least in part induced by President Trump, may indeed create some kind of boost to US GDP.
President Trump’s planned tax cuts may also create growth, as might plans to encourage US companies to repatriate their cash holdings.
These policies may support the US economy during this term of the Presidency.
On the other hand, according to a study led by Francesc Ortega, associate professor of economics at Queens College, President Trump's plans to send illegal immigrants to the US back home could knock three per cent off US GDP. If that is right, the positive effects of Trumponomics may be canceled out by the negative effects.
Of course, what the president says and does may be quite different. His anti-immigration bark may turn out to be worse than his anti-immigration bite.
Then there is the issue of 'bringing jobs back home/America first versus protectionism. The former may create growth in the shorter term, the latter may lead to less growth longer term - and in no small way.
Tax cuts may support growth in the short term, but reducing tax paid by the rich does not feel like a policy designed to support disenfranchised Americans who are victims of rising inequality.
But let's leave you with a thought. Perception matters. President Trump may or may not carry out the policies he says he will, but there is a perception that the land of the free, and the land that welcomes immigrants, furnishing then with a dream named after that very land, is not quite as free/welcoming/dream fulfilling as it used to be.
But then the Economist recently ran a story showing that no less than 33 per cent of tech firms founded in Michigan between 1995 and 2005 had at least one immigrant founder. Michigan is the state of Detroit, the rust belt, the very region which expects so much of President Trump, yet if the US loses its appeal to migrants, won't it also lose one of the key drivers of job creation? Such a policy may not manifest itself in lower growth for a few years, maybe not this side of the next US election, but it will manifest itself eventually.