J. Scott Applewhite, AP
Speaker of the House Paul Ryan, R-Wis., joined at right by House Ways and Means Committee Chairman Kevin Brady, R-Texas, meets reporters just after passing the Republican tax reform bill in the House of Representatives, on Capitol Hill, in Washington, Tuesday, Dec. 19, 2017.
The last time Washington embarked on a concerted program to deregulate business and cut taxes was during the Carter-Reagan years, and the Gipper’s economic expansion ultimately ran 33 quarters and accomplished 3.9 percent annual growth.
The loyal opposition in Congress and most economic forecasters are skeptical that the current round of tax cuts will create more than a temporary Keynesian jolt to growth.
For example, the Wall Street Journal survey of forecasters has growth for next year at about 2.6 percent and then falling back to approximately to 2 percent. That would be a bit slower than the 2.2 percent achieved during the Obama recovery. The Federal Reserve monetary policymaking committee’s expectations are about the same.
These projections appear to reflect the view that productivity growth and the labor-force participation rate have been permanently reduced by powers beyond the grasp of public policy. It’s as if eight years of more aggressive government regulations, higher taxes on businesses than abroad and new policies enabling able-bodied adults easier access to Social Security disability pensions, food stamps, Medicaid and the like had nothing to do with it.
The falling adult labor-force participation rate cannot be attributed only to baby boom retirements. In 2006, the Bureau of Labor Statistics projected an aging population would lower the participation rate from 66.2 percent to 65.5 percent by 2016. After Obama used the financial crisis as cover to build out the above-mentioned entitlements, the participation rate fell to 62.7 percent.
The economics profession appears to have lined up behind Northwestern University professor Robert Gordon’s view that the easy productivity-improving innovations have been found and advancing commercial knowhow is too expensive. For example, economists cite the rising cost of developing new drugs.