by Mitch Kokai
Senior Political Analyst, John Locke Foundation
It’s great to see a president focus on balancing the federal budget. But Gene Epstein of Barron’s pours some cold water on President Trump’s plan for accomplishing that goal.
… President Donald Trump’s 10-year plan offers a rickety foundation for achieving American greatness. It includes some good proposals and some bad ones. But the odds are slim that it can live up to its central claim: balancing the budget within a decade.
In a sane world, and even according to the precepts of conventional Keynesian economics, the federal budget should be balanced already at this stage of the expansion, not adding to a debt load that could eventually spark a fiscal crisis. Indeed, there should be budget surpluses to prepare for the staggering costs of “the baby boom [that] will become a senior boom,” as President Bill Clinton urged in his 1999 State of the Union address. To speak of taking a decade to achieve a balanced budget shows how far we’ve sunk since fiscal-year 2001, the last time the federal budget was balanced.
Of course, Trump can’t be blamed for the pileup of debt and deficits by Presidents Barack Obama and George W. Bush. But if he and OMB Director Mick Mulvaney want any credit for trying to restore fiscal sanity, they need a plan for matching income with outgo that looks plausible.
One reason this plan lacks plausibility gets back to the claim about trade deficits. Contrary to the statement that “persistent trade deficits go hand in hand” with slow growth, the evidence points in the opposite direction. …
… This matters because a linchpin of the OMB’s projection is the assumption of accelerated GDP growth. But if the Trump administration keeps convincing itself, contrary to economic logic and evidence, that trade deficits are a drag on growth, it will continue in its destructive quest to make imports more costly. Trump’s war on free trade will only slow growth, rather than boost it.