- Kevin Lamarque/Reuters
Perhaps you read the White House budget director’s piece on MAGAnomics in Thursday’s Wall Street Journal.
In it, Mick Mulvaney outlines President Donald Trump’s plan to get to 3% gross-domestic-product growth – what he believes is the natural state of the US economy.
If you didn’t read it, don’t worry about it. You really only have to be familiar with a classic “South Park” episode to understand why Mulvaney’s concepts don’t work. The economic stuff we can fill in at the bottom of this post. Trust me: It’s easy to pick up.
Mulvaney believes that cutting taxes for the rich, cutting the welfare budget, investing in fossil fuels, and bullying our trading partners will cause the economy to magically grow again. Do all those things, and BAM, 3% growth. It’s a magic elixir.
This sounds a lot like the business plan the Underpants Gnomes outlined in episode 17 of the second season of South Park. In the episode, Tweak, an overcaffeinated elementary-school kid, believes that someone is stealing his underwear. Everyone thinks he’s nuts, until they find that there are in fact gnomes stealing his underpants to “make a profit.”
Their business plan is as follows:
Steal underpants ? Make a profit
Obviously this is absurd. The gnomes don’t actually know how the underpants makes a profit or what its real value is. They just think stealing underwear is the magic elixir. It’s just the plan they know, and so they’re going to stick with it.
- Screenshot, Youtube
Back to Mulvaney. The plan he outlines sounds pretty familiar. It harks back to a time when he and a lot of the other members of the administration were proud, young Republicans: the days of President Ronald Reagan.
Back then, the Gipper promised to do much of what Mulvaney is promising. The world was dependent on fossil fuels (and had just finished reeling from a disastrous energy crisis in the 1970s), tax cuts were on the way, and the federal budget was being sliced and diced by Republicans decrying the excesses of welfare queens in collecting checks and riding around in their Cadillacs.
So Mulvaney’s phase one is simple: Make America like Reagan’s America again.
Caught with your underpants
The problem, of course, is phase two. The actual part that makes the money. Mulvaney thinks that if he puts all of the Reagan elements together, the economy will just magically grow again, just as the gnomes think they’ll make a profit if they steal underwear.
But the problem is that in Reagan’s day people gave a lot of credit to tax and budget cuts that either didn’t really materialize or ultimately had to be rolled back because they were hurting the economy.
We know the whole story of how Reagan’s policies didn’t generate a phase two thanks to the man who had Mulvaney’s job in Reagan’s time. His name is David Stockman, and he laid out the whole sordid story of Reagan’s budget in The Atlantic.
There he acknowledged simply: “None of us really understands what’s going on with all these numbers.”
Stockman went to Washington ready to cut, cut, cut – just as Mulvaney describes he would like to do – but the reality was he couldn’t cut programs that actually made a meaningful difference to the budget. Those programs have little to do with welfare and more to do with the sacred cows Trump himself has said he’ll either increase or leave alone: defense, Medicaid, and Social Security.
If you’re not cutting these, you’re cutting bupkis.
And even outside those, Stockman found, making the cuts you do want to make is almost impossible. “Greed came to the forefront” in negotiations, he said, and special-interest groups and politicians made deal after deal to keep their pet programs in the budget. Which is to say, much of what Reagan wanted didn’t get done.
From The Atlantic, quoting Stockman:
“I don’t believe too much in the momentum theory any more,” he said. “I believe in institutional inertia. Two months of response can’t beat fifteen years of political infrastructure. I’m talking about K Street and all of the interest groups in this town, the community of interest groups. We sort of stunned it, but it just went underground for the winter. It will be back … Can we win? A lot of it depends on events and luck. If we got some bad luck, a flareup in the Middle East, a scandal, it could all fall apart.”
In other words, Reagan claimed victories, but they were small. As for taxes, it’s also worth remembering that after his tax cut in 1981, Reagan was forced to reverse himself in 1982 and 1983 because of the federal debt.
Will the real phase 2 please stand up
So that leaves one question. What did actually produce the growth of Reagan’s America? The answer is not magic; it’s actually quite tangible. This is numbers, after all.
What really made the economy grow back in the 1980s was the amazing force of our country’s demographics.
“Back in the ’80s, baby boomers were coming into the labor force, and many women were entering the workforce for the first time, too,” Lee Branstetter, an economist at Carnegie Mellon, told Business Insider back in February. “That resulted in the workforce increasing by 1.7%, and because of technological advancement, productivity growth was running at about 1.7% as well.”
That’s where you get your 3% GDP growth number. Not so magic after all. If you add a ton of people to the labor force, you’ll generate more economic growth.
What we should be doing is giving people the tools to get good-paying jobs by funding training programs and investing in education. This can increase productivity and make our workforce more modern.
Instead, we’re stemming the flow of immigration (new workers) and cutting welfare, which means people can’t buy things. Since our economy is made up of people who buy things (80% consumer spending), this doesn’t help either.
And just FYI on tax cuts:
Shout-out to Trey Parker and Matt Stone for this valuable lesson in economics.