Most people involved in economic policy debates have derided Donald Trump's claims that he would boost the U.S. growth rate from its recent 2.0 percent annual rate to 4.0 percent or even 3.0 percent. However the Washington Post featured a column today that insists such a pickup is imminent and derides policy types for not being prepared.
The article insists that we are about to see massive job displacement with robots and artificial intelligence radically reducing the need for human labor. If it is not immediately clear that this is a prediction that growth is about to boom, then you must be as ignorant as a Washington Post editorial page writer.
Job displacement means productivity growth. If the piece is correct then we are about to see a massive upsurge in productivity growth. The recent pace has been just 1.0 percent annually. The authors presumably envision productivity growth rising to something like the 3.0 percent annual rate we had in the long Golden Age from 1947 to 1973, a period of low unemployment and rapidly rising real wages.
Economic growth is the sum of productivity growth and labor force growth, so if we get productivity growth of 3.0 percent annually, then we are looking at GDP growth rates in line with Donald Trump's targets. Of course this would mean that the Congressional Budget Office and all the other forecasters are hugely off (hardly impossible, they all missed the collapse of the housing bubble as well as the weakness of the recovery that followed) and that concerns about large budget deficits are incredibly misplaced.
For my part, I am agnostic on these predictions of a massive surge in productivity growth. Our past efforts at predicting productivity growth have been virtually worthless. Economists completely missed the slowdown in 1973, almost completely missed the pickup in 1995, and totally missed the more recent slowdown in 2005.
I think much of the story is endogenous in the sense that a weak labor market forces workers to take low pay and low productivity jobs. In other words, if we pushed the economy with more spending (e.g. larger budget deficits or smaller trade deficits) we would see more productivity growth as workers shifted to better paying, higher productivity jobs, and firms adjusted to a more expensive workforce with labor saving innovations.
But speculation aside, we should at least be able to have clear thinking on the issue. If we actually face massive job displacement due to technology, then we are looking at a period of rapid growth in which budget deficits are not at all a problem. This is not a debatable proposition, it is true in the same way that 3+2 = 5 is true. It would be great if the people involved in policy debates understood this fact.