From CNBC:
I really believe it,” Trump said in an interview with Fox News. “We’re saying 3 (percent) but I say 4 over the next few years. And I say there’s no reason we shouldn’t be able to get at some point into the future to 5 and above.
Here is a graphical depiction of Trump’s 4% forecast (teal), as compared against the January 2017 CBO projection (red), WSJ April survey (blue), and a time series model.
Figure 1: GDP (black), WSJ April survey mean (blue), CBO January projection (red), ARIMA(1,1,1) estimated from 1986 onward (purple), and Trump 4% growth rate (teal), all in billions Ch.2009%, SAAR. Plotted on log scale. Source: BEA 2017Q1 advance release, WSJ, CBO Budget and Economic Outlook (January 2017), and author’s calculations.
Note that a 4% growth rate collides with current estimates of potential, or “full employment” GDP; by the 3rd quarter of 2017, the economy would be above estimated potential, if 4% growth were to apply in 2017Q2 and onward.
Figure 2: GDP (black), WSJ April survey mean (blue), CBO estimate of potential GDP (gray), and Trump 4% growth rate (teal)), all in billions Ch.2009%, SAAR. Plotted on log scale. Source: BEA 2017Q1 advance release, WSJ, CBO Budget and Economic Outlook (January 2017), and author’s calculations.
A short term boom of 4% growth is possible, in the short term (say quarter or two), given a sufficiently reckless expansionary fiscal policy, but a more durable one will encounter one of two obstacles: a Fed operating on something like a Taylor rule, or barring that, a long run aggregate supply curve that is vertical (the short run might be kinked as well, so that the boom would be even more short-lived).
Now, it’s certainly possible that CBO’s estimate of potential GDP is way too low. Or that potential GDP growth will accelerate rapidly with Trumponomics. The following graph should dispel notions of 3-4% sustained growth:
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