The alternative-fact alerts are blaring.
President Donald Trump is reportedly preparing forecasts for economic growth that considerably exceed those published by most mainstream economists. So what, you may say. It’s just a forecast. There’s no harm in being more optimistic than the rest.
But fudging the numbers can cause plenty of harm. Trump, as becomes more apparent every day, creates his own data when the facts don’t suit him. (See: greatest electoral victory since Reagan, widespread voter fraud, highest murder rate in 45 years, unreported terrorist attacks, etc.) And economic policy is highly dependent on the best possible understanding of what’s going on. Bogus economic data can be used to justify new policies that might appeal to Trump personally—and appease his populist supporters—while failing to address real economic problems and even damaging the economy.
Trump is preparing a budget that predicts the economy will grow by around 3.5% per year for the next several years, according to a Wall Street Journal report. Mainstream forecasters like the Congressional Budget Office, the Federal Reserve and private research outfits think that’s way too high, and expect growth closer to 2% per year. A point-and-a-half difference in the economic growth rate might not sound like a lot, but it’s actually huge. If the US economy were growing by 3.5% now, we’d probably have several million additional jobs, higher incomes and a lot less dissatisfaction.
The Trump administration hasn’t yet published its forecasts, which will be part of the 2018 federal budget Trump must submit to Congress in a few weeks. So we don’t know exactly how Trump’s team is arriving at rosier forecasts. And the Trump forecasts could change.
Politicizing economic data
But Trump’s economic proposals so far rely heavily on supply-side assumptions about tax cuts and infrastructure spending producing a big boost in growth. Such assumptions could justify a big increase in annual deficits and the national debt, since faster growth in the future would produce more income and therefore more tax revenue for the government. That’s not what happened during the last supply-side experiment, however. The big tax cuts signed by President George W. Bush in 2001 and 2003 failed to produce a notable boost in growth, and simply added to the national debt.
The danger is using selective or bogus forecasts to justify bad policy choices. “If it didn’t affect policy, there would be no harm,” says conservative economist Donald Boudreaux of George Mason University. “The harm comes through its potential affect on policy. It can make policy worse.”
Trump’s team is already looking into ways to restate trade deficits that would make them sound worse than they are, by counting foreign products that transit the United States on their way to some other country as imports but not exports. Economists say such products must be treated the same—either counted as imports and exports both, or not counted at all—to give an accurate picture of what’s happening. Counting them as imports but not exports would make the trade deficit larger, fueling calls for protective tariffs and other trade restrictions Trump favors. Many economists and business leaders say such protectionism would raise prices and hurt the economy.
Researchers are beginning to explore whether Trump could politicize economic data the federal government collects and disseminates, which is largely viewed as rigorous and untainted by political manipulation. “The Trump administration’s alarming tendency to dismiss objective facts as ‘fake news’ has led to claims that the president and his team could seek to politicize US statistics,” British research firm Capital Economics wrote in a recent note to clients. Such worries, the firm said, “are a little far-fetched, but no longer completely implausible.”
It’s obviously still early in Trump’s administration, and it may be premature to charge him with the intent to manipulate economic numbers. But Trump is not like other presidents. His contempt for data and science is unprecedented. He dismisses facts that are irrefutable. And he has made promises, such as 3.5% economic growth, that reality may not abide.
To that end, we may be seeing the outlines of a strategy for Trump to declare victory on the economy, regardless of what really happens. Trump could use forecasts in this year’s presidential budget to change the way growth is measured, setting a new baseline that could make it easier to hit the 3.5% number in subsequent years. When experts protest, he’ll call it “fake news,” and blame the media for lying about the real rate of growth.
One big catch is that ordinary people who support Trump now may not buy it if Trump says the economy is suddenly doing great–but they don’t see it reflected in their own lives. “You can fool people into thinking they’re worse off than they really are,” says Boudreaux. “It’s harder to fool people into thinking they’re better off than they really are.” Alternative facts can’t enlarge your paycheck, after all.
Confidential tip line: email@example.com
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman
More from Rick: