Commentary: The tax bill is a joke, but so is most punditry on it.

The Senate might pass the tax bill. Whoopee doo. Its a tiny package. The US economy is 18.5 trillion dollars. The tax bill increases the deficit by 1.5 trillion dollars over ten years. That's a tiny amount considering the cumulative GDP of the United States will be close to 200 trillion dollars over that same time period. (202.56 trillion exactly assuming a 2 percent growth rate) So putting 1.5 trillion into the economy ought to increase total GDP over the same period by somewhere around 1.5 trillion dollars. OK. Its a tad more complicated. Fiscal multipliers seen in the wild are usually between 1.2-1.5. So we are looking at a bill that at most ought to increase total GDP over ten years by about 2.25 trillion. That's a little more than one percent cumulatively. And guess what, that's what the rosiest estimates which are serious are predicting. 

Again, whoopee doo. No, the increased debt will not bury our children.(But again, I've debunked the debt nonsense a million times before) No this tiny package won't set off an era of robust growth. Its not a macro economic package at all. It's a Donald Trump ego package. 

A serious macro package would be bigger, and would be targeted like a laser on raising wages. That would attract more people back into the labor force, one of the few macro variables still out of whack from the great recession and definitely something that's holding back growth. Higher wages would also help the Fed get stubbornly low inflation back on target.

This bill might keep the stock market rally going. It's probably worth a couple trillion of increased market cap for America's largest companies, because stock prices are tightly tied to expect future after tax earnings. But this isn't rocket fuel for the economy. Its not even an M80. Its a burned out sparkler on July 5th.