The economic growth debate: Is it just guesswork?

The argument between the Trump administration and its critics over a sustainable rate of economic growth raises profound questions about America’s future.

Have we entered a prolonged period of slow growth? If so, how does that alter society and politics? Or will the “right” policies raise growth to past levels?

In its budget, the White House projected annual inflation-adjusted economic growth of 3 percent over the next decade.

This almost equals the average rate of 3.2 percent since 1950. Meanwhile, the Congressional Budget Office and many private economists project an annual growth rate of around 2 percent, or roughly what it has been since 2010.

Predictably, the Trump forecast has been savaged. Jason Furman, head of the Council of Economic Advisers under President Obama, notes that the gap between the administration’s forecast and the “Blue-Chip” consensus of private forecasters is much wider than anything experienced in “the 24 budgets under Presidents Bill Clinton, George W. Bush and Barack Obama.”

Economist Simon Johnson of the Massachusetts Institute of Technology argues that adopting the faster growth rate is intended to justify tax cuts.

The economy’s slowdown stems from two causes. One is an aging population. Large numbers of retiring workers are blunting growth of the labor force. The CBO expects the workforce to increase 0.5 percent annually, about a third of the post-1950 rate.

Slumping productivity is the other major cause. Productivity — efficiency — reflects technology, worker skills and competitive markets, among other things.

The CBO is projecting that productivity will grow 1.3 percent annually. Taken together, low productivity and labor force gains guarantee a plodding economy.

Precisely, retort some conservative economists. But these conditions are not immutable. The right policies can change behavior. Lower tax rates, less regulation and limited government spending can boost growth by raising after-tax profits and promoting investment.

It is not outlandish to think that productivity and the labor force will respond to better policies. What to make of this debate? Be skeptical of both sides. Productivity is too complex. It may respond to policy, but it also responds to many other things, including something as vague as a country’s “economic culture.”

It’s guesswork. To resolve these problems, economists often assume that present trends will continue. It’s a reasonable, if timid, response.

Still, it ignores the prospect of a dramatic break from the present. Trump’s economic assumptions are optimistic and selfserving. But they are not impossible.

Yet, even if Trump’s 3 percent growth materializes, it won’t suffice.

His objective is to balance the budget by 2027. On paper, faster growth does that. But the underlying assumptions of government spending over the decade are unrealistic.

Trump would cut spending on defense and domestic “discretionary” programs (justice, regulation etc.) by half, as a share of the economy. This won’t happen — and shouldn’t.

Here is the debate’s larger significance: We can no longer grow our way out of serious conflicts, if we ever could.

There isn’t enough money to satisfy all our demands, even at higher rates of economic growth.

The present is contentious; the future may be worse.