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How Trump Can Hit Growth Targets
Donald Trump ’ s U . S . Treasury secretary pick has provided a policy North Star . By Glenn Hubbard
BY SETTING AN AMBITIOUS 3 % GROWTH TARGET , Scott Bessent ( who as of this writing was moving quickly toward confirmation as U . S . Treasury secretary ) has provided the Trump administration a North Star to follow in devising its economic policies . The task now is to focus on productivity growth and avoiding any unforced errors that would threaten output .
Bessent is right to emphasize faster economic growth as a touchstone of Donald Trump ’ s second presidency . More robust growth not only implies higher incomes and living standards — surely the basic objective of economic policy — but also can reduce America ’ s yawning federal budget deficit and debt-to-GDP ratio , and ease the sometimes difficult trade-offs across defense , social , and education and research spending .
But faster growth must be more than just a wish . Achieving it calls for a carefully constructed agenda , based on a recognition of the channels through which economic policies can raise or reduce output . While a pro-investment tax policy might boost capital accumulation , productivity and GDP , higher interest rates from deficit-financed tax or spending changes might have the opposite effect . Similarly , since growth in hours worked is a component of growth in output or GDP , the new administration should avoid anti-work policies that hinder full labor-force participation , as well as sudden adverse changes to legal immigration .
While recognizing that some policy shifts that increase output might adversely affect other areas of social interest ( such as the distribution of income ) or even national security , policymakers should focus squarely on increasing productivity . The three pillars of any productivity policy are support for research , investmentfriendly tax provisions and more efficient regulation .
Ideas drive prospects in modern economies . Basic research in the sciences , engineering and medicine power the innovation that advances technology , improvements in business organization , and gains in health and well-being . It makes perfect sense for the federal government to support such research . Since private firms cannot appropriate all the gains from their own outlays for basic research , they have less of an incentive to invest in it . Moreover , government support in this area produces valuable
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