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Donald Trump will review from a teleprompter during the State of the Union debate on Tuesday dusk but drooling on himself, and pundits will announce him a master statesman. In the march of this speech, he will also likely announce that the U.S. economy is sepulchral like never before. But as Paul Krugman reminds us in his Monday column, that comment is over-optimistic at best, and entirely fake at worst.
After all, this administration has a gossamer attribute with the truth. Remember when the Treasury Department claimed that the GOP taxation devise will compensate for itself since we can design an annual expansion rate of 3 percent over the next decade? About that number, Krugman writes, “This expansion projection didn’t come from any model; it was just pulled out of…well, you fill in the rest.”
Now is as good a time as any for a march in macroeconomics 101, and Professor Krugman is here to deliver. First, he reminds us, “you need to know that quarter-to-quarter and even year-to-year expansion rates are very variable.” Looking back at prior administrations, “the economy grew at a 5 percent annual rate during much of the Carter administration (how many people know that?); it grew around 4 percent during the second Clinton administration.”
The business cycle is mostly behind these changes. Krugman continues:
“Potential output—the economy’s prolific capacity—grows sincerely smoothly. But recessions leave some of that ability idle, and the economy can temporarily grow quick as that ability is put back to use.” That’s partly what we’re traffic with now: “the stagnation rate is an unlawful magnitude of idle capacity; still, there’s a clever relationship—Okun’s Law—between changes in the stagnation rate—capacity going into or out of use—and short-run mercantile growth.”
Sure, some signs demeanour good. Unemployment rates are historically low, while “other indicators, like the rate at which workers are quitting jobs (a sign of how assured they are of anticipating new jobs), also indicate to a some-more or reduction full practice economy. Wage expansion and acceleration are still subdued, but it’s still doubtful that stagnation can tumble a lot from here.”
Why can’t we trust the hype? Krugman cites what is famous as Okun’s Law, a ubiquitous order of ride that the stagnation rate dictates the rate of mercantile growth. Of course, “the attribute isn’t perfect, since this is economics, but it’s flattering strong. It suggests a intensity expansion rate—growth unchanging with consistent unemployment—of maybe 1.5 percent. And 2017 isn’t an outlier.”
So because is that 3 percent figure all smoke and mirrors? Krugman thinks demographics is personification a big part:
“The baby-boomers are getting old (you kids get off my lawn), so the working-age race is hardly growing. Oh, and enormous down on immigration is, you know, not likely to help on that front. Productivity expansion is also lackluster, despite all the hype about robots and all that. So if you consider about it, 2017 offers no justification to support big speak about future growth. On the contrary, the fact that stagnation declined despite not-so-fast expansion is a sign that expansion will be a lot slower going forward, now that we don’t have a lot of impoverished Americans to put back to work.”
Just don’t design Trump to discuss any of this during his residence Tuesday.
Read the whole column.
Ilana Novick is an AlterNet contributing author and prolongation editor.