NABE’s Policy Survey is first since Trump Administration took office

The National Association for Business Economics’ (NABE) semiannual Economic Policy Survey focused on some of the critical topics that President Trump and his advisers face.  Conducted January 31 – February 15, the survey revealed some disagreements with the new administration but also identified some common ground.  In general, business economists prefer freer trade, more immigration of high-skilled workers, and greater consumer choice and control on health insurance, and expressed concern that the administration’s plans for fiscal policy will worsen the federal budget deficit.

Fiscal Policy.  A clear majority of economists felt that the primary objective of current fiscal policy should be to promote economic growth in the longer-term by deepening capital and increasing labor force participation.  In other words, by providing incentives for investment and job creation, fiscal policy can support productivity gains and faster economic growth.  And while nearly one-fourth of those surveyed felt the government’s budget deficit was not a problem, the large majority preferred a reduction in the deficit, both in absolute dollars as well as relative to GDP.  The preferred vehicle to achieve a smaller deficit was through spending restraints or cuts – particularly for federal entitlements – rather than through revenue enhancement (either higher or new taxes and fees).

The administration has announced that it wants to increase defense and infrastructure spending, and wants to simplify the tax code and lower marginal tax rates for individuals and corporations.  While specific details were not available at the time of the survey, there was widespread concern that the administration’s program would exacerbate the budget deficit.  Of those economists that expressed an opinion, 8-in-9 believed that the administration’s proposals would increase the deficit, both in absolute dollars and relative to GDP.

Monetary Policy.  While most economists felt that the Federal Reserve’s current monetary policy was about right, 4-in-10 felt it was too stimulative (Figure 1).  There was a clear view that the Federal Reserve will be taking additional steps toward normalizing monetary policy in coming months.  A majority of economists expect at least a 0.5-percentage point hike in the federal funds target during 2017.  Further, about one-third judged that the Federal Reserve will begin to reduce its long-term asset portfolio (i.e., reduce its holdings of mortgage-backed securities and long-term U.S. Treasuries) by the end of 2017; however, while a large majority expect the Federal Reserve to reverse its “quantitative easing” activities, most expect that will not occur until 2018 or later.

Health Care Policy.  Business economists were asked their opinion of the Affordable Care Act (ACA, also known as “Obamacare”) and whether to keep, repeal, or replace.  A slightly larger number of economists had a favorable view of the ACA than an unfavorable view.  Nonetheless, less than one-fourth believed the ACA had struck a reasonable balance and should be kept.  The majority favored replacement with a system that increases consumer choice and control, supported by tax credits (Figure 2).

Foreign Trade Policy.  Economists were generally in favor of freer trade and opposed to unjustified barriers to foreign trade.  A large majority of economists favored the North American Free Trade Act (NAFTA) but were more evenly split on whether U.S. tax policies place exporters at a competitive disadvantage, with a slightly larger proportion agreeing that tax policies hinder American exporters.  And while about one-fourth felt that U.S. imports should never encounter barriers to entry, nearly 7-in-10 believed that barriers should be used occasionally and tactically, when vital industries are threatened by unfair trade practices.

Immigration Policy.  Respondents also had a variety of views on whether illegal immigration was a problem in the U.S.  On a scale running from “1-Nonexistent”, through “5-Neutral”, to “10-Severe”, the median response was “4”; in other words, while most economists saw it as a small issue, there were many who did see it as a more severe problem.  And while nearly 3-in-10 economists who had an opinion preferred no change in immigration policy, those who wanted a change were in favor of more immigration by a 5-to-2 margin.  Moreover, the economists clearly saw a need for more high-skilled labor with the U.S. unemployment rate currently below 5 percent:  A large majority were in favor of expanding high-skill worker visa programs, such as the H1-B, to increase labor availability (Figure 3).

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