Tuesday, September 27, 2016

Peter Navarro’s Scoring of Trump’s Economic Proposals

My inbox just received a weird hodgepodge of economic claims ala Peter Navarro:
Donald Trump’s economic plan proposes tax cuts, reduced regulation, lower energy costs, and eliminating America’s chronic trade deficit. Trump’s goal is to significantly increase America’s real GDP growth rate and thereby create millions of additional new jobs and trillions of dollars of additional income and tax revenues. Hillary Clinton’s economic plan will inhibit growth.
Does Navarro have an actual model that supports these claims? I’m asking the econoblogosphere to check out this weird set of assertions lest I’m being unfair here. But this entire paper looks like some strange exercise in cutting and pasting that one might find from a high school student who did not know how to write an actual analysis. Let’s read on:
Separately from this report, the non-partisan Tax Foundation has released its analysis of the Trump tax plan. It dynamically scores a $2.6 trillion reduction1 in revenues relative to the current tax policy baseline as of the end of a 10-year budgeting horizon. However, as is the typical practice within the modeling community, the Tax Foundation does not score other elements of the Trump economic plan that are growth-inducing and therefore revenue-generating. This report fills this analytical gap. Specifically, we provide our own fully transparent scoring of the Trump economic plan in the areas of trade, regulatory, and energy policy reforms based on conservative assumptions. Along with tax reform, these areas represent the four main points of the Trump policy compass. Each works integratively and synergistically with the others and in conjunction with proposed spending cuts.
Integratively and synergistically! Wow – this must be some incredible model. But as we read on, Navarro contradicts himself:
Donald Trump’s tax, trade, regulatory, and energy policy reforms deal with the root causes of this problem. Trump understands that our economic problems are long run and structural in nature and can only be addressed by fundamental structural reforms. This is a key distinction between Donald Trump and an Obama-Clinton strategy that has relied so heavily – and futilely – on repeated fiscal and monetary stimuli. All we have gotten from tilting at Keynesian windmills… The growth in any nation’s gross domestic product (GDP) – and therefore its ability to create jobs and generate additional income and tax revenues – is driven by four factors: consumption growth, the growth in government spending, investment growth, and net exports. When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth.
Navarro first mocks Keynesians and then basically tells us he is running a purely Keynesian exercise? I bet Gerald Friedman is screaming that he did that and he got hammered for it. As I read this latest exercise, I did not find a shred of consideration of things like potential GDP and how it might evolve over time in response to the Trump proposals. We do see this claim:
To score the benefits of eliminating trade deficit drag, we don’t need any complex computer model. We simply add up most (if not all) of the tax revenues and capital expenditures that would be gained if the trade deficit were eliminated. We have modeled only the impacts of implicit profits and wages, not any other economic aspect of the increased activity.
I’m sorry but we do need to model out the supply side. If Navarro does not know this – he is not qualified to do the analysis.


reason said...

Why bother. It is from the Trump campaign => it is all lies. No further analysis is needed. What would be surprising is if he accidently said something true.

ProGrowthLiberal said...

Mark Thoma has posted two critiques of Navarro-Ross both attacking the terrible treatment of international economics - one ala Krugman (who is on a tear with that VAT claim) and one from the Peterson Institute.

rosserjb@jmu.edu said...

Of course there is basically no evidence that tax cuts stimulate all that much growth. Clinton raised taxes and the economy grew more rapidly, Bush cut them and it grew less rapidly. From 1940 to 1964 the top marginal federal income tax rate exceeded 90%, but we grew more rapidly than we have since 1986, when that rate dropped below 50% and has stayed there since. Yes, of course, a lot else going on, but bottom line is that tax rates do not have nearly the import that so many think or claim they do, especially delusional Lafferites.

Maybe they can raise the growth rate slightly by some well-targeted deregulation, but their targeting of that does not seem all that well done.

Energy policy, fossil fuels more destructive than non-fossil fuels. No big gains here, unless wants a lot of earthquakes in an super-fracked North Dakota.

Of course the real kicker is this net export bit. They do not say how they are going to get rid of that negative trade balance. Massive devaluation? How are they going go do that, move to fixed rates? Order the Fed to set the fed funds rate at negative 10%. Or maybe they plan to do it by massively cutting imports through tariffs and quotas. Indeed, Trump probably can impose a bunch of those without Congressional approval. But given that all that would involve violating a bunch of existing trade agreements, we should expect retaliation from major trading partners, with them putting on restrictions on our exports, as happened in the Great Depression after Smoot-Hawley went in, a full bore trade war. So any effort to really cut imports directly is almost certainly going to lead to a major cut in our exports, which may make it difficult to get rid of that trade deficit.

Has Navarro thought that one through? Has anybody connected with the Trump campaign thought that one through, given that it is clearly the ultimate centerpiece of the economics side of his campaign?

Barkley Rosser

ProGrowthLiberal said...

Barkley - the real kicker is the net export thing. Lots of other economist bloggers are all over the poor analysis in this regard.

Procopius said...

Barkley - "Indeed, Trump probably can impose a bunch of those without Congressional approval." I don't think so. Haven't we been told these many years that we will be hammered by fines and sanctions from the WTO if we unilaterally impose tariffs? Which leads me to remember a vague fragmentary quote, "How many divisions does ... have?" We pay no attention to inconvenient laws when it suits us, amirite?

rosserjb@jmu.edu said...


I said Trump could do it without Congressional approval. I fully agree that there might be a response from other nations, which is indeed why I think Navarro is pollyanna about their ability to actually lower the trade deficit. We can block imports, but they can block our exports, leading to trade war.