He’s allowing the government to run large budget deficits — some of the largest ever outside wartime or recession — in the hopes that this will somehow put growth on a higher trajectory.Irresponsible as that might sound, it actually makes some sense.In the long run, economic growth is a function of two variables: population and productivity.For decades, America had plenty of both. Birth rates were ample, and any additional labor could be attracted from elsewhere.From 1947 to 2007, workers’ output per hour grew at an average annual rate of 2.3 percent.So for the most part, American presidents could focus on improving rather than reviving growth.But since the last recession, the picture has changed. In advanced economies, central banks have the tools they need to fight it.Slow productivity growth, by contrast, has become a real concern, especially as countries seek the resources to take care of aging populations and still invest in their futures.Republicans and Democrats may disagree on the best way to create deficits, whether it be tax cuts and military spending or investments in infrastructure and education. But the balance of risks leans toward trying this experiment.Be it the Trump administration or the next, someone was eventually going to take the gamble.Conor Sen is a Bloomberg View columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.More from The Daily Gazette:EDITORIAL: Find a way to get family members into nursing homesEDITORIAL: Urgent: Today is the last day to complete the censusEDITORIAL: Thruway tax unfair to working motoristsEDITORIAL: Beware of voter intimidationFoss: Should main downtown branch of the Schenectady County Public Library reopen? Categories: Editorial, OpinionPresident Donald Trump is conducting a risky experiment on the U.S. economy. So the whole game becomes a big bet that deficits — created by the government’s tax cuts and spending plans — will boost productivity growth. Treasury Secretary Steven Mnuchin suggested as much last week when he said that the Trump administration’s policies could lead to wage growth without inflation, and that people shouldn’t worry about the forthcoming deficits.Ironically enough, this policy was espoused by the Bernie Sanders campaign (as my colleague Noah Smith has noted).The idea is that by running the economy hot and making labor more expensive, the government can induce businesses to do more investment than they would in a normal economy.Ever since the financial crisis, a weak economy has discouraged businesses from investing, leading to weaker productivity growth — so why not try the opposite? It’s a theory that hasn’t been tested in recent decades, but an intriguing one.What are the potential risks and rewards? Sticking with the status quo promises more of the same underperformance — annual real GDP growth of about 2 percent. The deficit experiment has two possible outcomes.In the best case, the U.S. gets some form of productivity miracle. In the other, rising inflation forces the Fed to raise interest rates to cool off the economy, triggering a recession.Most policymakers, economists, and investors aren’t worried about a period of inflation like what the world experienced in the 1970s. Labor-force growth is slowing as baby boomers retire. For a variety of reasons, some understood and some not, productivity has decelerated as well.The Obama administration largely accepted the new reality: In a 2016 report, it projected inflation-adjusted gross-domestic-product growth of just 2.2 percent for the next decade, and offered fairly traditional ideas such as immigration reform, more cross-border trade, infrastructure spending and education investments.Trump has taken a very different approach, aiming for annual growth of 3 percent over the next decade.This certainly won’t come from population, particularly given his administration’s attitude toward immigration.That leaves productivity, which some of his policies don’t do much to encourage, either.Tariffs on imports such as steel and aluminum will serve largely to make output more expensive.Tax cuts might prompt companies to make more productivity-enhancing investments, but the effect will likely be modest given uncertainty about how long the cuts will remain in place.
Elsewhere, with a return of 3.7%, the €2.2bn KLM pension fund for cabin staff was the best performing scheme of the three large schemes of the Dutch airline over the first quarter.The pension fund’s coverage ratio rose by 0.6 percentage points to 123.6%, equating to a real funding of 78.7%.The Stichting Pensioenfonds Cabinepersoneel KLM reported returns for fixed income, equity and property of 3.3%, 1.7% and 2.9%, respectively, while a 50% interest hedge contributed 1.4 percentage points to the total result.However, following rising equity markets, it lost 0.1 percentage points on its equity cover.Over the same period, the €6.6bn KLM scheme for ground staff achieved a return of 3% due mainly to the rising value of its bonds portfolio.Its interest hedge contributed 0.5 percentage points to the quarterly result of the Algemeen Pensioenfonds of KLM.According to the scheme, fixed income, equity and real estate returned 3.6%, 1.7% and 2.8%, respectively.It added that it was considering investing in existing funds of Dutch mortgage loans, as a way of diversifying its portfolio.Since year-end, the coverage ratio of the pension fund for ground staff rose from 122.1% to 122.8%.The €7.3bn KLM scheme for cockpit staff (Vliegend Personeel) reported a quarterly return of 2.5%, while its coverage rose by 0.5 percentage point to 133.3%.The assets of the KLM schemes are managed by Blue Sky Group.In other news, the €85m pension fund of bicycle manufacturer Gazelle has joined SPP, the €660m multi-company scheme of Dutch Volkswagen importer Pon.SPP was alreading managing the pension assets of the Stichting Pensioenfonds Pon Holdings (SPPH), the Stichting Pensioenfonds Geveke (SPG) and the surviving relatives scheme of the Stichting Pensioenfonds Pon.The Gazelle pension fund has approximately 1,875 participants in total, and was founded in 1927.Although it is part of the metal and electrotechnical engineering industry, it had been exempt from mandatory participation in the industry-wide metal scheme PME.The scheme said it decided to join the multi scheme for reasons of continuity, expertise and costs.The Pon multi scheme was established on 1 January 2012 to simplify joint operations, while allowing the participating pension plans to keep their own characteristics.An additional consideration was that, because of the ring-fenced assets within the multi scheme, the principle of solidarity between participants could remain limited to the individual pension plan, SPP said.The multi-company scheme has now approximately 10,550 participants in total.Following their respective collective labour agreements (CAOs), a large part of the Pon employees are participants of either metal scheme PME or PMT, the pension fund for the metalworking and mechanical engineering industry. Vervoer, the €15.7bn pension fund for the private road and waterways transport sector in the Netherlands, has reported a 6% return for the first quarter of 2014. Over the first three months of the year, its coverage ratio improved by 3.4 percentage points to 112.7%.Vervoer attributed the increase of its coverage to its 64.3% fixed income holdings and falling interest rates, as well as a positive return on its derivates to hedge the interest risk on its liabilities.The transport scheme, which has 624,000 participants in total, said its fixed income and equity holdings returned more than 3% and 0.7%, respectively, while property and infrastructure returned 0.7% and 2%.