The Trump administration’s latest budget, which was released in mid-February, projects 3 percent annual GDP growth for much of the next decade. Most economists consider that forecast to be somewhere between wildly optimistic and historically absurd.
Why? Because consistent 3 percent growth, while the norm for countries like China and India, is exquisitely rare among developed economies. The average annual growth of America’s GDP since the Great Recession has been about 2 percent. Achieving Trump’s dream of growth would require some heroic supercharging of the economy.
There are several ways that economic growth can take off in a country like the U.S. First, the federal government has a wide arsenal of policies to combat recessions. When the economy slips into a funk, the feds can cut taxes and increase spending, thus running a large short-term deficit to combat slow growth. The Federal Reserve can slash interest rates to encourage corporations to borrow and spend more money than they otherwise would.
The most obvious problem with deploying any recession-busting policies now is, well, the U.S. isn’t in a recession. Quite the opposite: The economy is nearly at full employment. Interest rates are already low and most economists expect them to do nothing but rise in the next few years, which should discourage investment and growth. The Republican tax cut, combined with increased spending, will increase the deficit for the next few years—a rarity this deep into a recovery. It’s conceivable that those deficits might provide a bit of a boost. But sustained 3 percent growth isn’t likely.