stable unemployment―was projected to be 2% per annum. Post-election, our estimate of the economy’s potential has not changed.
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To be sure, long overdue corporate tax reform should provide a meaningful boost to the economy’s potential. Lower marginal rates and the adoption of a territorial tax system will lower the cost of capital for businesses and prompt greater investment. More investment and a larger capital stock
will lift labor productivity growth and the economy’s growth potential. But this boost will need time to develop, much longer than Trump’s term as president, and although it will be a meaningful addition to growth in the long run, it is not the game changer that the new president is hoping for. The economy’s growth potential may increase from 2% to 2.25%, not Mr. Trump’s stated 4% goal.
Moreover, President Trump’s anti-globalization stance will eventually catch up to the economy. It will lead to a smaller workforce as some undocumented workers leave the country and fewer legal immigrants come. Global trade also suffers as the nation pulls away from trade deals and skepticism increases around our trading relationships, all of which impedes competition and productivity growth.
Economic policy during the Trump presidency can take many alternative paths, and Moody’s Analytics will consider many of them. However, under most scenarios the economy is more cyclical and its long-run growth potential is unchanged.
Mark M. Zandi is chief economist of Moody’s Analytics, where he directs economic research. Moody’s Analytics, a subsidiary of Moody’s Corp., is a leading provider of economic research, data and analytical tools.
Dr. Zandi is a co-founder of Economy.com, which Moody’s purchased in 2005.
Dr. Zandi conducts regular brie ngs on the economy for corporate boards, trade associations, and policymakers at all levels. He is often quoted in national and global publications and interviewed by major news media outlets, and is a frequent guest on CNBC, NPR, CNN, Meet the Press, and various other national networks and news programs.
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