The game of professional baseball has enough statistics to occupy the full-time talents of MIT’s entire department of mathematics. However, one statistic looms tall above all others: batting average. That’s because batting average isn’t just a good arbiter of a player’s performance, but a suggestion of their performance relative to the past and the future.
A player batting .250 with a career average of .150 suggests a stream of extreme luck, and a player batting .150 with a career average of .250 is likely in a major slump that he’ll eventually break.
If you consider GDP growth to be the batting average of the American economy, then there’s no question that we’re in one of the worst slumps in the history of our nation. For President Donald Trump to reverse this slump, he’ll need more than good luck. Yet this signature promise of his campaign isn’t as far-fetched as a Larry Summers editorial in the Washington Post would have you think.
Three percent GDP growth is no unicorn. Our economy hit that mark, and then some, fourteen times between 1980 and 2000; under Obama it hit 2% or higher just four times. Yet this target is easier talked about than reached.
Perhaps appropriately, the Council of Economic Advisers sees three large barriers to the dream of three percent growth: productivity must improve, greater labor growth must compensate for baby boomers leaving the workforce, and tax cuts need to pull their weight.
Productivity will almost certainly be the most difficult aspect of growth. The industrious American worker is no cliche; Jeb Bush’s disastrous presidential campaign put forward the notion that Americans have to work more at a time when we’re among the hardest-working nations in the world, ahead of the OECD average (although we’re ironically behind Mexico).
A slowdown of productivity over the past decade is, like the labor pool, a result of an aging workforce. Some economists believe that productivity, like batting averages, are just as much luck as they are hard work: the average deviation for productivity compared to the long-term trend is nearly one and a half percentage points.
If this is the case, we’re long overdue for a luck swing in a positive direction. Getting better productivity means better human capital and/or better technology. The latter is far easier to gain than the former, although the president has much more power over the former than the latter.
In regards to labor growth, President Trump stands in an awkward position. There’s likely to be no increase in the working population over the next fifteen years as low birth rates combine with high numbers of elderly workers retiring.
Some of this can be reversed by eliminating the failed Obama policies that reward inactivity rather than industry, most notably Obamacare, which slices about a full working week per year from each American worker as they work less while receiving greater benefits.
Changing Social Security to create the incentive for later retirement is both prudent and economically wise, but extraordinarily risky for any politician to tackle (recall the AARP throwing their entire weight against George W. Bush’s plan to partially privatize the system). Thus, the easiest way to boost labor growth is allow more immigration — after Trump campaigned and won with the promise to clamp down on undocumented workers.
Don’t think that Trump sits between a rock and a hard place, however, because a single red marker and the regulatory book can do a lot for the American economy. Trump’s pledge to eliminate two regulations for each new one is not only a breath of fresh air for budget hawks, but a long-overdue change to a “regulatory state” that has seen restrictions triple since the Nixon Administration.
While some nations like Australia enact independent bodies to toss poor or archaic regulation onto the ash heap, American politicians care much more about laws to come than laws already passed. As a result, regulation constantly chokes out optimal growth, productivity, and efficiency.
As just one example, the Department of Transportation recently overturned a rule requiring truckers to file reports before and after trips, which will save the industry nearly two billion dollars. One in five businesses claim that regulation is their greatest problem; the World Economic Forum ranks the US as the 29th-easiest place to comply with regulation, behind Saudi Arabia.
Three percent growth reflects a critical target for the American economy and a vital aspiration for a new government that made big promises. To reach three percent growth, President Trump must make a number of decisions, many of which are unpopular. But these changes must be put forward to keep the economy from a further eight years of stagnation.
Regards,
Ethan Warrick
Editor
Wealth Authority
