Trump: productivity and potential growth? - Nomura
|Analysts at Nomura explained that the success of Trump's policies in raising economic growth and incomes will depend, importantly, on the degree to which those policies boost productivity.
Key Quotes:
"Two key themes of Trump's policies are tax reform and deregulation. If done well, these policies could increase productivity growth. But the scale of these effects is hard to know and history suggests that caution should be in order."
"19 The late 1970s and the early 1980s was a period of significant deregulation, started under President Carter and expanded under President Reagan. In addition, the last significant reform of the US corporate tax system was completed in 1986. There is little evidence that deregulation and tax reform increased productivity during this period. Figure 9 shows the trajectory of multi-factor productivity since 1973."
"Formal statistical analysis suggests that productivity growth slowed in the early 1970s and it did not accelerate until the mid-1990s.20 In other words, deregulation and corporate tax reform in the 1980s did not seem to generate any notable acceleration of productivity growth.21 While we accept that Trump's policies may increase productivity growth somewhat, we doubt that these positives effects are large enough to provide a significant counterbalance for the negative effects of Trump's immigration policy on aggregate supply. Consequently, our forecast is based on the judgment that Trump's economic policies will not materially alter potential growth."
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