Can The US Economy Grow At 3% Rate?

The Wall Street Journal editorial team invited four participants to debate whether the US economy can grow at 3%.  Two of the debaters were on the positive side and the other two were skeptical about reaching a 3% growth rate.  This video of the debate provides the details of the arguments that were made.  The audience, which was invited by the WSJ editorial team, gave a narrow margin of victory to the negative team.  That result is rather meaningless.  Its unlikely that members of the invited audience changed their minds as result of the debate.  That is because economic debates are generally influenced more by ideology than they are by facts.  I have provided an overview of the issues discussed in the debate by both sides.

The pro 3% growth team consisted of an economist who believes that the Trump tax cuts, which he advocated, will deliver a 3% growth rate.  He was joined by a member of the WSJ editorial staff who argued that the private sector could reach the 3% growth rate as long as the government let market forces work their magic.  She argued that government welfare programs give workers an opportunity to avoid work and that innovations in public education would do little to improve human capital.  Private industry could do a better job than government.  She also argued that government regulations discourage capital investment by private industry.

The other side of the debate was taken by an economist from Brookings and an economist who has been an economic advisor to Democratic presidents.  They argued that the economic growth rate is determined by a number of factors which are very difficult to alter.  Demographics are important because the number of workers in the workforce have a huge effect on the potential output of the economy.  Another important factor is the productivity growth rate because that affects the output per worker.  The demographics are not positive; the population growth rate is lower than in was during our periods of higher economic growth, and current policies will lower the number of immigrants entering the workforce.  The productivity growth rate has been stuck at a relatively low rate in recent years and it would be difficult to substantially alter that growth rate.  The labor force participation rate in the US has also been falling.  That is, a smaller portion of a shrinking labor force is entering the job market.  Fewer men are participating in the workforce, and the female participation rate which had promoted growth earlier, has begun to decline.  Both of the debaters on the negative side believe that government programs might improve the labor force participation rate as well as labor force productivity but they don't expect big changes on either of these important factors.

I think that most economists would share the views expressed by the negative team.  Their views are also shared by the bulk of the economic forecasting community.  In my opinion, the cheer leaders on the positive side either believe that tax cuts will perform magic, despite the demographics and stagnant productivity growth,  or that the market will perform miracles if we could get government out of the way.  That is also the typical position advocated by the liberatarian WSJ editorial staff.