Mnuchin badly deluded on growth

Three per cent may no longer be sustainable

There has been plenty of attention paid to the downside of the Donald Trump administration’s remarkable first month in office. We’ve seen an immigration ban bungled, downright-odd pugnacity with allies like Australia, brinkmanship with China and Mexico, the revelation of more troubling links with Russia, and so on.

Yet stock markets, for their part, seem to have been doing a pretty good job of focusing almost exclusively on the upside in the administration’s economic promises, which have driven markets up in the States and globally (including Canada, but excluding, notably, Mexico).

Underpinning that ebullient response is a belief the United States is poised to get growing again. In an interview with the Wall Street Journal last week, Steve Mnuchin, the new Treasury Secretary, reiterated his claim that “more normalized economic growth” of three per cent — or even more — was both achievable and sustainable. His boss has declared that four per cent was even within reach.

But is it? And if so, is it sustainable?

The answers to those question matter beyond America’s borders. If the world’s biggest economy does indeed launch into hyper-growth, then the global economy stands to benefit, too — and Canada more than others, given our close relationship with the States. (Let’s assume for now that it doesn’t fall victim to rising U.S. protectionism.)

But make no mistake about how ambitious the Republican target really is. Growth in U.S. real GDP hasn’t been above three per cent for more than a decade — 2005, to be exact, at the height of the housing bubble, when it hit 3.3 per cent. (Canada’s came in at 3.2 per cent that year.)

That level of growth did not prove sustainable, as we all know. (See: the housing bust.)