President-elect Trump's nominee to serve as Treasury secretary, Scott Bessent, has touted a "3-3-3" economic plan that would seek to reduce budget deficits while boosting growth and energy production.
Bessent discussed the 3-3-3 plan this summer at an event hosted by the Manhattan Institute. He said it would involve cutting the budget deficit to 3% of gross domestic product (GDP) by 2028, the last year of Trump's second term; boosting GDP growth to 3% through deregulation and other pro-growth policies; and increasing U.S. energy production to the equivalent of an additional 3 million barrels of oil per day.
His 3-3-3 plan was inspired by the late Japanese Prime Minister Shinzo Abe, who adopted a "three arrows" plan that featured aggressive monetary policy along with fiscal stimulus and structural reforms aimed at lifting Japan's economy from stagnation and persistent deflation.
"It would be 3% real economic growth – how do you get that? Through deregulation, more U.S. energy production, slaying inflation and forward guidance on confidence for people to make investments so that the private sector can take over from this bloated government spending," Bessent said.
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Bessent said Trump should tout a deficit reduction goal as part of the plan: "I would urge him to make public his desire to get the deficit down to 3% by the end of his term. He didn't get us to these 6% or 7% deficits. I think they averaged 4% under him, so get that down to 3%."
Bessent added that boosting energy production would help bring down future expectations about inflation, given that energy and gasoline prices are a key element of household budgets reflected in inflation measurements.
"Three million more oil barrels equivalent a day from U.S. energy production. That would be my 3-3-3. That would substantially decrease the oil price, which – that's one of the No. 1 drivers of inflation expectations," he said. "And then, back to the Fed, they could go into a proper easing cycle."
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Bessent said the federal government's fiscal trajectory means that time is dwindling for the U.S. to try to use growth to stabilize the situation and said, "I think we're at the last-chance bar and grill for growing our way out of this."
He added that the U.S. should extend and reinstate expired provisions of the Tax Cuts and Jobs Act of 2017 with pay-fors to offset some of the revenue reductions caused by the extended tax cuts. Bessent then went on to discuss other ways the U.S. should restrain spending.
"The Green New Deal, we could probably save $1 trillion over 10 years on that. I think there's probably something to do on Medicaid in terms of empowering states, no cuts. On discretionary spending, we probably need to do some kind of a freeze except for defense," Bessent said. "I think the market will respond to that."
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Bessent went on to say that the federal government's "high deficits are going to create a national defense problem" because the elevated levels of spending and debt reduce its ability to leverage an increase in spending during times of crisis and war.
"U.S. Treasury was able to save the country during the Civil War by expanding the deficit… They saved the economic well-being of the country during the Great Depression by spending. And then we were able to save the world during World War II. So we have to get this down, or we have no room for maneuver," Bessent said.
He added that with the budget deficit on track to widen, "I think that President Trump, with the right policy, could create a reflexive, self-reinforcing cycle on the downside."
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Bessent acknowledged that the federal government's mandatory spending – particularly the Social Security and Medicare entitlement programs – is a major driver of budget deficits. However, he said he thinks it's more realistic for the incoming Trump administration to focus on curbing discretionary spending, a much smaller portion of the overall federal budget, to create momentum for a future administration to take on entitlement reform.
"These entitlements are massive. I think the next four years isn't the time to deal with them, that we've got to deal with the discretionary portion of the budget and get that under control. But I think the signal – I always say, crawl, walk, run – we've got to crawl, maybe walk our way to get the current deficits under control, then the next step is for a future administration to have the confidence to be able to deal with entitlements," Bessent said.
