Necessary Fantasy: White House Estimates 3% Growth For a Decade

Here's one for the "not going to happen" category. Trump believes his policies will lead to 3% sustained growth.

The White House’s budget proposal, to be released Monday, estimates 3% Growth for 10 Years, on average.

The budget proposal projects the economy will grow about 3% annually over the coming decade, though officials now expect a slightly larger near-term boost, with output rising 3.2% next year before declining to 3% in 2021 and 2.8% by 2026, according to projections reviewed by The Wall Street Journal.

Many private forecasters also expect economic growth to pick up this year because of consumer and business spending encouraged by tax cuts signed by the GOP president in December, plus a two-year, $300 billion funding deal signed Friday.

But many don’t see quite as large an increase as the administration, and they don’t see the boost lasting for nearly as long. On Friday, economists at J.P. Morgan said they now expect the economy to grow 2.6% this year and 1.9% next year.

In December, Federal Reserve officials raised their projection of GDP growth for the current year to 2.5%, and for next year to 2.1%. They still see the economy growing around 1.8% over the long run.

Optimists Every One

A single recession in the next 10 years will likely ruin even the 2.0% projections.

Contrary to popular thinking, the increased deficits will not add to growth.

Moreover, a sustained stock market decline is guaranteed to subtract from consumer spending.

Necessary Fantasy

It is uncertain if the Trump forecasters really believe the nonsense they spew.

They had to make rosy projections to get their policies passed.

Had they claimed their policies would lead to 1.8% growth, the Senate would have rejected the tax cuts and spending bills.

The question here is: Are they liars, fools, or both?

I vote both.

Mike "Mish" Shedlock

2nd "Both". [roflol]

Only 3%? I thought Trump expected 5%! Barring a black swan event, I expect around 2% growth in the US for the next 3 years. After that, it’s hard to even guess. There are a few things that might boost the US growth rate towards 3%. One would be a new immigration policy that encourages highly skilled immigrants to move to the US, and fill a large number of jobs that sit empty. The second growth booster would be rapid adoption of self-driving vehicles.

Prediction is very difficult, especially about the future. But isn't this from the same man who said under oath that his estimate of his brand's value fluctuates daily based on how he feels that moment.

“The question here is: Are they liars, fools, or both?”

I’d say they are liars. The fools are the voters who keep sending them back into office.


People are underestimating the benefits of deregulation to economic growth. It’s a much greater factor than the tax cuts, which are a double edged sword because of the deficit. The repatriation of cash abroad is another boost GDP will have. Apple alone could add a percent to growth over the next five years with capital expenditures.

@El_Tedo. Reagan cut regulation. We've had studies. So on what basis are people guilty of underestimating and if so what gives you the real number? And while i agree that regulation is an economic cost, its also true that without any regulations companies can dump their costs on the public like in the case of pollution

makes one wonder if the advocates of the tax cut actually believe in their prediction

El_Tedo; you make two good points. However, I believe it is you who overestimates the impact to growth. In spite of all the stimulus in the last decade, the economy has grown at a modest pace. Currently, the US economy is near full capacity, unemployment is at very low levels, and many jobs requiring skilled workers sit empty. Whatever additional stimulus is applied (deregulation, repatriation, lower taxes, increased government spending, a new infrastructure plan, artificially low interest rates, QE, etc) the benefits are not going to be as significant as you are hoping. Other constraints (in addition to capacity and labour restraints) include Trump’s antagonistic trade policy (what point is there in expanding domestic capacities if you have no international markets to sell to?) , weakening domestic demand (lack of wage growth, reduced savings, demographics, high debt levels), Trumpian uncertainty; he wants to be unpredictable (businesses want stable policies in order to make investment decisions), Government overspending (rather than being stimulative, many fear that out-of-control Govt. spending will actually be a negative).

Everyone is not underestimating the impact of deregulation, but most of the doom & gloomers are. Mish doesn't site it as even a mitigating factor in his pessimism, even though he's fairly libertarian in his views.

Hi Realist: I pointed to two items - deregulation and repatriation of funds - as reasons for some optimism. I am not a believer in stimulus. In fact, I believe in the opposite - the crowding out effect of government spending. I disagree with you regards full capacity. There is plenty of room for improvement in workforce participation. Otherwise, we'd be seeing more wage inflation. I also think worries about Trump's trade policies are over blown. With regards to 'Trumpian uncertainty', I think it's a valuable trait for foreign policy. I don't see Trumpian uncertainty in his domestic policy. He's been a fairly consistent paelo-conservative populist for 40 years, but he definitely is for too much spending.

Well, good then. 3% growth leveraged at 3x or so should give us 9% growth in the Stawks. That, leveraged another 3x in the derivatives might work out to 27%. /s

Hey El_Tedo. We agree that attempting to stimulate the economy will be counterproductive. We also agree that there is room for improvement in workforce participation. In order to achieve a higher rate of workforce participation will require a significant amount of retraining (which I don’t see happening) or a significant increase in immigration of highly skilled workers (which I also don’t see happening).

" If you require a forecast in order for your investment thesis to do well, then I think you're doing it wrong." Mark Spitznagel

Nice article by him up on ZH

Passive Investing and Risk Parity,,,well worth a look.

Welfare & entitlement reform would help too, making the safety net a little bit less of a comfortable hammock. Also these municipal jobs with full benefits & pension after 25 years. Healthy people should work into their 70s these days.

"They had to make rosy projections to get their policies passed.

Had they claimed their policies would lead to 1.8% growth, the Senate would have rejected the tax cuts and spending bills.

The question here is: Are they liars, fools, or both?"

hmm, sounds like the passage of obama's health care bill

The real issue is interest rates. With the 10 year yield fifty percent higher than inflation, it will kill consumption by the bottom 90% and when that becomes evident as soon it will, it will kill the stock market and that will kill consumption by the top 5%. We are closer to a recession than 3% growth.