Trump’s supply-side economic swindle

The director of the Office of Management and Budget, Mick Mulvaney, took to The Wall Street Journal’s op-ed page last week to promote the Trump administration’s economic agenda, the dubiously named “MAGAnomics.”

The plan as outlined is a wish-list of traditional supply-side policies that are hardly unique to this administration: lowering taxes, curbing environmental and labor regulation, and cutting back programs that benefit workers and their families. A few more Trump-ian planks include the on-hold infrastructure plan and a commitment to fair trade — a theme of the president’s campaign that still lacks any real policy detail.

{mosads}As Mulvaney points out, many experts are skeptical that 3 percent economic growth can be achieved in the short term. Among them is Janet Yellen, chair of the Federal Reserve Board, who recently told the Senate Banking Committee that such growth is unlikely in the next five years. The Congressional Budget Office recently projected 1.9 percent growth under the administration’s proposed agenda. A 3 percent growth projection is grossly unrealistic, but faster growth would be a clear boon to the nation.

Even faster growth, though, is no guarantee that the fruits of that growth would accrue to average Americans.

Trump budget chief celebrates rollback of 860 regulatory actions since Trump took office https://t.co/Zi84jKneRT pic.twitter.com/hfQxqAclN5

— The Hill (@thehill) July 20, 2017

U.S. policymakers have long focused on growth in Gross Domestic Product, the sum total of all the goods and services produced in the country, which tells us how much total U.S. economic output expanded or contracted. But GDP doesn’t tell Americans anything about the economic prospects of people like them. Pause for a moment and imagine that I told you the economy grew by 5 percent in the first six months 2017. Mulvaney and President Trump would be thrilled. Yet that could mean wildly different things for working Americans. Low-and middle-income wages could be stagnant, for example, while rising wages and investment income among high-income Americans would mean they benefited richly from the overall growth in the economy.

This is exactly what has happened in the United States. The economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman found that between 1962 and 2014, average national income per adult rose by 61 percent, which sounds like good news until we dig below this topline number. For those Americans on the lower half of the income distribution, total real income growth (after accounting for inflation) was a paltry one percent while those with incomes in the top one percent experienced a whopping 205 percent rise.

We need to stop treating GDP growth as the only metric that matters and start thinking about how the economy is working for Americans across the income spectrum. Looking only at GDP provides a distorted portrait of the state of our economy and it should not be used as the topline metric to guide policymaking.

House Budget Committee advances budget that would cut billions in mandatory spending https://t.co/U3ucbhiFUd pic.twitter.com/S4mOwxO9Hn

— The Hill (@thehill) July 20, 2017

“MAGAnomics” provides a perfect jumping off point to see why focusing on GDP growth is a mistake. Let’s start with Mulvaney’s claim that the whole country benefitted from Reagan-era tax cuts and deregulation. He says that between 1983 and 1990, real GDP grew at an annual rate of 4.4 percent. There are two problems with this analysis. First, he’s stacked the deck by choosing the bottom of a severe recession as his starting point. Serious economists look at the business cycle from peak to peak or trough to trough; they don’t cherry pick the worst year to the best.

Even so, his analysis also fails because those years did not deliver equitable growth. Instead, these are the years when the divergence between the poor, the middle class, and the rich really took off. Between 1983 and 1990, real average income for the bottom 90 percent grew by 1.9 percent percent per year while the top 1 percent of earners saw their incomes surge by more than 7.2 percent percent annually — just the beginning of the widening income inequality gap the emerged over the past four decades.

Like Director Mulvaney, I believe the U.S. economy is capable of great things. I also believe that working-class Americans need a boost as they continue to experience poor wage growth amid seven years of tepid economic growth since the end of the Great Recession in mid-2009. Tax cuts for the wealthiest Americans alongside cuts to government programs that help working and retired Americans make ends meet haven’t worked in the past to create those gains, and they won’t work now.

Creating strong economic growth for all Americans requires that we look at the right data and enact a policy agenda that delivers sustained, shared prosperity. A good place to start would be to ensure that families can earn a living wage, which means support for organizations that improve worker bargaining power and ensuring broad access to necessary benefits such as paid leave and work schedules that fit the demands of family life.

It also means recognizing that the market economy works best when government focuses on regulating business so that it works in the public interest to promote broad-based economic growth that delivers higher wages to more Americans across the economy, not just those at the very top of the wealth and income ladders.

Heather Boushey is executive director and chief economist at the Washington Center for Equitable Growth and the author of “Finding Time: The Economics of Wok-Life Conflict” and co-editor of “After Piketty: The Agenda for Economics and Inequality.”

The views expressed by contributors are their own and are not the views of The Hill.