In the WSJ today, Romney economic adviser Glenn Hubbard outlines what results Americans can expect from the Romney economic plan of tax cuts, deregulation and entitlement reform:
In contrast to the sclerosis and joblessness of the past three years, the Romney plan offers an economic U-turn in ideas and choices. When bolstered by sound trade, education, energy and monetary policy, the Romney reform program is expected by the governor’s economic advisers to increase GDP growth by between 0.5% and 1% per year over the next decade. It should also speed up the current recovery, enabling the private sector to create 200,000 to 300,000 jobs per month, or about 12 million new jobs in a Romney first term, and millions more after that due to the plan’s long-run growth effects.
A reasonable baseline economic forecast for the next five years would be 3% average growth. (This assumes the EU doesn’t implode, which may be too much to ask.) In fact, that is the IMF forecast for the U.S. economy through 2017.
So, basically, Romney seems to be suggesting 4% growth over that period. If he can pull it off, the economy in 2017 would be about $1 trillion bigger than it would be under the IMF baseline scenario.
Do any of the Romney numbers make sense? Are they realistic? Well, the last time the U.S. economy grew by 4% in a year was 2000, and average job growth about 200,000 a month. And in 2004-2006, the economy grew about 3% a year, also generating 200,000 jobs a month over that period. So if the economy grow by 4% a year during Romney’s first term, 10-12 million net new jobs seems doable.
The key, then, is being able to hit that 4% mark. Can better, smarter public policy boost growth by a full point over the baseline? A study by McKinsey thinks higher growth of that magnitude is possible if the U.S. can boost productivity via a pro-innovation tax policy, smarter regulation, more high-skill immigration, and various other policies — which kind of sound like what Romney is proposing.
Here is a list of possible options created by McKinsey, categorized by different levels of government intervention: