WHAT TRUMP SHOULD TACKLE NEXT TO BOOST GROWTH / THE FINANCIAL TIMES OP EDITORIAL

What Trump should tackle next to boost growth

Permitting and housing reforms as well as R&D investment and more highly-skilled immigrants are needed

Glenn Hubbard

Government has to address the lack of affordable housing, which prevents people moving closer to jobs in the most productive areas © M Scott Brauer/Bloomberg

US President Donald Trump is on a roll when it comes to economic policy. 

The One Big Beautiful Bill has been signed into law. 

And Treasury secretary Scott Bessent has signalled a completion of major trade deals by September 1, on top of agreements with Japan and the Philippines this week. 

The president should now turn to his campaign promise of rebooting America’s economic growth. 

Such a shift would both increase future incomes and put the country on a more stable fiscal trajectory.

Bessent has argued that pro-growth economic policies generate salutary effects both through higher output and income and through lower ratios of federal deficits and debt to GDP. 

He’s spot on. In 2024, the Congressional Budget Office raised a tantalising policy goal: raising total factor productivity growth (growth not explained by growth in inputs) by 0.5 percentage points each year for 30 years. 

This could increase incomes by almost 20 per cent per person. 

Debt held by the public would be 42 per cent of GDP smaller and stabilised. 

Such a calculation imagines an exogenous increase in productivity growth, one that doesn’t itself require additional deficit spending.

In reality, of course, growth doesn’t just happen. 

Given the current hype around the productivity benefits of generative artificial intelligence (AI), maybe AI offers the source of such an increase. 

Technologists and economists are divided over the likelihood of such a boost, but potential constraints on AI growth abound from regulation, including regulation of electricity generation and permitting. 

The question is which public policies might provide a fillip to productivity growth.

The first bipartisan possibility is electricity generation and permitting reform, which aid both growth and the dissemination of productivity gains from generative AI.

Despite estimates by the US Department of Energy that new electricity transmission lines would produce outsized benefits, we are building very little long-distance transmission capacity due to local regulatory vetoes. 

As it does already with siting natural gas lines, the Federal Energy Regulatory Commission could pre-empt local authorities when siting transmission lines.

Permitting reform can also stimulate electricity transmission and building projects. 

A key obstacle at the moment is the required environmental review process under the National Environmental Policy Act (Nepa). 

But Congress already exempted certain semiconductor projects subsidised under the Chips and Science Act from this, leading the CBO to estimate faster project implementation and investment.

Land use and housing regulations also hold back growth by raising the cost of construction (increasing prices and rents) and by limiting mobility across metropolitan areas, which prevents people moving closer to jobs in the most productive areas (due to a lack of affordable housing). 

Gains from zoning reform would be large. 

One recent study estimated that relaxing regulations in the seven metro areas with the largest gaps between housing prices and construction costs would increase GDP nationally over time by nearly 8 per cent.

Housing construction decisions are generally made at the state and local level but the federal government still has levers to pull. 

For example, federal transportation funding could be tied to zoning changes, through a competitive grant programme for zoning reforms. 

Alternatively, eligibility for the Low-Income Housing Tax Credit in major cities could be tied to pro-housing policies.

A more politically challenging reform would be increasing federal support for research and development at a time when the Trump administration has been reducing such funding. 

Recent studies support the idea that additional R&D investment can lead to significant productivity and output gains, so much so as to be almost self-financing — generating nearly enough incremental tax revenue to cover the budgeting cost of the federal R&D support.

Likewise, the US needs an increase in high-skilled immigration, that is, more workers eligible for H-1B visas requiring specialised knowledge and credentials — a policy goal that is likely to be controversial given the administration’s current stance on immigration. 

More highly skilled foreign workers don’t just raise the level of economic activity through higher labour supply, they also contribute to growth through innovation and entrepreneurship.

Trump’s emphasis on removing barriers to US economic growth is important. 

Growth isn’t everything, but it can advance incomes, dynamism, and fiscal sustainability. 

Now is a good time to start.

The writer is a professor of finance and economics at Columbia Business School and former chair of the US Council of Economic Advisers.