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Out: Trumponomics. In: MAGAnomics. What’s missing? The entire 21st century technological revolution.
In the Wall Steet Journal, White House budget boss Mick Mulvaney introduces the portmanteau MAGAnomics, the Trump agenda for achieving 3% growth. As Muvlaney notes, for “merely suggesting that we can get back to that level, the administration has been criticized as unrealistic.”
Actually this criticism has come in two flavors. The first, noting chronically weak productivity growth and a demographic-driven decline in labor force growth, views 2% growth as the new 3%. Welcome to the New Normal. Indeed, the 2% growth forecast is actually too optimistic if productivity growth stays stuck at the 0.5% average rate notched since 2010. In that case, we’ll have more like a 1% growth economy.
But if you assume the sharp productivity slowdown is at least partly due to a cyclical recession hangover, figure a productivity rebound to 1.5%. That would produce 2% GDP growth when combined with 0.5% labor force growth.
So the core problem is boosting productivity growth another percentage point or so. That’s where smarter policy would probably have the most impact. And this is where the second flavor of criticism comes in: Faster growth is possible, but the Trump agenda won’t get it done. Mulvaney’s summation of MAGAnomics and how it would boost productivity and growth focuses on tax reform, deregulation, welfare reform, cheaper energy, improving infrastructure, “fair trade,” and spending restraint.
This is basically five-sevenths traditional Reagan Republicanism, with trade and infrastructure as the Trumpian bits. Noticeably left out is Ryan Republicanism. The words “debt,” “entitlements,” “Medicare,” and “Social Security” are not mentioned in the piece.
But, oddly, also no mention of “innovation,” “technology,” “internet,” “robotics,””drones,” “artificial intelligence,” “autonomous vehicles,” “automation,” “immigration,” “entrepreneurship, or “startups.” Not a “unicorn” to be found. And I would think that it would be hard to create a modern pro-growth agenda without using those words — and the policies they suggest.
As it happens, the Peterson Institute is just out with a report on boosting productivity. This graphic sums up their take on what is possible given ongoing technological progress:
So that would put us in the 2.5-3% growth range. The Peterson take also syncs with a recent analysis from AEI Visiting Fellow Bret Swanson and economist Michael Mandel of the Progressive Policy Institute, commissioned by the Technology CEO Council.
The 10-year productivity drought is almost over. The next waves of the information revolution—where we connect the physical world and infuse it with intelligence—are beginning to emerge. Increased use of mobile technologies, cloud services, artificial intelligence, big data, inexpensive and ubiquitous sensors, computer vision, virtual reality, robotics, 3D additive manufacturing, and a new generation of 5G wireless are on the verge of transforming the traditional physical industries—healthcare, transportation, energy, education, manufacturing, agriculture, retail, and urban travel services. . . . Healthcare, energy, and transportation, for example, are evolving into information industries. Smartphones and wearable devices will make healthcare delivery and data collection more effective and personal, while computational bioscience and customized molecular medicine will radically improve drug discovery and effectiveness. Artificial intelligence will assist doctors, and robots will increasingly be used for surgery and eldercare. The boom in American shale petroleum is largely an information technology phenomenon, and it’s just the beginning. Autonomous vehicles and smart traffic systems, meanwhile, will radically improve personal, public, and freight transportation in terms of both efficiency and safety, but they also will create new platforms upon which entirely new economic goods can be created. . . . How much could these IT-related investments add to economic growth? Our assessment, based on an analysis of recent history, suggests this transformation could boost annual economic growth by 0.7 percentage points over the next 15 years
And where does policy come in? Again from the Peterson report (bold is mine):
The best way government could hasten this productivity revival is through continued adherence to a set of growth supporting policies that have received bipartisan support for decades. The first is robust federal investment in basic science. Although science is the foundation on which technological progress depends, markets will not invest in it to a sufficient degree; the argument for government support is clear and compelling (Stephan 2012).
Evidence also shows that immigrant scientists and entrepreneurs play a disproportionate role in driving the technological advances that power productivity growth in the United States (Kerr et al. 2016). Rather than dissuading highly skilled immigrants from seeking educational and employment opportunities in the United States, as the Trump administration seems to be doing, the federal government should make it easier for inventors, scientists, and entrepreneurs from around the world to secure the right to work in the United States. The globalization of invention could undergird productivity growth in the United States— but globalization of invention presupposes the continuation of an open global trading and investment system supported by the United States. Recent statements and policy steps by the new administration backing away from that longstanding bipartisan embrace of open trade and investment are likely to undermine, rather than support, future economic growth.
That said, openness to international trade, investment, and new technology often brings disruption. The safety net has not done nearly enough to limit the disruptive impact of trade and technology shocks in the United States. Many economists have long advocated “wage insurance,” which would compensate workers forced to move to jobs that paid less than they had been earning, as a useful addition to the safety net (Lalonde 2007). Such a system merits close consideration. Current proposals to curtail or weaken the safety net represent a significant step in the wrong direction.
New educational technologies are potentially transformative, but the fragmented and imperfect nature of the market for them could drastically limit their adoption and slow their diffusion. As Chatterji and Jones (2012) note, the officials making curricular decisions for the more than 13,000 school districts in the United States are constantly bombarded by (mostly false) claims regarding the efficacy of new educational products and curricular fads—claims they generally lack the expertise to verify. They also face distorted incentives: If they adopt a new technology that fails, their careers are in jeopardy, whereas if they continue to underperform as badly as peer institutions, their jobs are secure. Given these market imperfections, Chatterji and Jones make the case for a public agency or public-private partnership that could certify the efficacy of new educational technologies in the same way the Food and Drug Administration (FDA) certifies the safety and efficacy of new drugs, by supervising rigorous, randomized control trials. Modest policy effort in this direction could yield rich dividends in the form of much faster, more cost-effective human capital formation.
One key to growth is really along the lines of “The future is already here — it’s just not very evenly distributed”— except it’s technological progress that’s not evenly distributed. (Indeed, a good chunk of the paper discusses how “the pace of IT innovation is much faster than official indexes suggest and business investment is much stronger than traditional measures indicate.”) So I would like to see more focus on competition and dynamism policy as a way of encouraging diffusion. But I don’t see that in MAGAnomics, either.