With the election five weeks away, it is worthwhile revisiting the candidates' economic proposals. This week, I evaluate the Trump economic plan and his views on trade and the Federal Reserve.
Last spring, Donald Trump proposed a wide variety of household and business tax cuts, spending reductions, and budget reforms. While they sounded great, they were extremely costly.
The nonpartisan Committee for a Responsible Federal Budget (CRFB) estimated the Trump plan would increase the national debt by more than $11 trillion over 10 years.
The huge rise in debt was neither politically acceptable nor fiscally responsible, so the plan was overhauled recently. The tax rate cuts were modified, lessening the revenue losses, but new spending was added. The CFRB estimated the hit to the national debt to be $5.5 trillion, which is still quite large.
However, the Trump economic advisers argued that their plan created a debt increase only in the $2 trillion range over 10 years. (The Trump website does not provide a debt-increase estimate.) While $2 trillion is better than $5.5 trillion, it is hardly chopped liver.
So why are the Trump estimates so different from ones made by private research organizations? The major reason relates to how you calculate (or "score") the revenue losses and gains.
There are two schools of thought. The first is the standard "static" approach. This assumes the proposals will not change the pace of economic growth. The second is "dynamic," which assumes the proposals cause growth to either increase or decrease.
Not surprisingly, the Trump analysts employed the "dynamic" approach. They asserted that growth would average from 3.5 percent to as much as 4 percent over their 10-year plan. And that is the political rub: It is not likely to happen.
The Trump assumptions are well above accepted trend growth estimates. The average of the benchmark Blue Chip Economic Panel (of which I am a member) is 2.1 percent, the Congressional Budget Office uses 2 percent, while the Federal Reserve's range of estimates averages 1.9 percent.
The Trump economists' assumed growth rate is 75 percent to 100 percent faster than most of their peers'.
As for the argument that tax cuts worked for Ronald Reagan, well, 35 years ago there was no internet or smartphone, China was an agrarian country, Google and Amazon didn't exist, and the U.S. economy was dependent on manufacturing. That economy doesn't exist anymore, so stop using Reagan as an example of how tax cuts can work.
As the CFRB put it: "Trump would rely on, not just aspire toward, unachievable levels of growth."
Yet despite the rose-colored glasses approach, massive new debt would still be created.
When it comes to job creation, the Trump economists claim their plan will create 25 million jobs. In actuality, they note it will add 18 million new positions to the seven million that would happen anyway.
Is that strong job growth? The 2.5 million new jobs per year is precisely the average increase for the last five years. In other words, the Trump plan requires implausible growth rates to create jobs at the same pace the Obama economy has added since 2011.
But there are other issues. The economic estimates do not consider Trump's trade policies. His proposals to impose tariffs and abrogate/renegotiate trade agreements are likely to set off retaliatory acts by trading partners. Companies that depend on imports or exports could be harmed significantly. Immigration limits could hurt U.S. companies that rely upon foreign labor.
Both Moody's Analytics and the Peterson Institute for International Economics estimated that if Trump's tariffs induce the expected reciprocal actions, the U.S. economy would fall into recession. Moody's wrote that their results "imply an unusually lengthy recession - even longer than the Great Recession." Much of Trump's forecasted job gains would be wiped out.
Finally, there is the relationship with the Federal Reserve. Like it or not, rates have been kept low because of concerns about the U.S. and world economies, not because the Fed chair supports a candidate. Even Trump's economists know the reluctance to raise rates has nothing to do with politics.
But politicizing the Fed is dangerous. If the Fed chair has to worry about what the president thinks or says, there will be no politically independent economic policymakers left in Washington. Monetary policy could become as disastrous as fiscal policy and we would all be in trouble.
In summary, the Trump economic plan depends on unrealistic economic assumptions, adds greatly to the nation's debt burden, and doesn't produce outsized numbers of new jobs.
It does create the potential for a trade war that could drive the economy into recession, and it threatens the independence of the nation's most critical economic organization, the Federal Reserve.
In two weeks, the Clinton plan.