Pethokoukis, Economics, U.S. Economy

Obama White House: US likely faces ‘permanently slower’ economic growth

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You want to know what the New Normal is? This (via the new White House budget):

In the 21st Century, real GDP growth in the United States is likely to be permanently slower than it was in earlier eras because of a slowdown in labor force growth initially due to the retirement of the post-World War II baby boom generation, and later due to a decline in the growth of the working age population.

Indeed, Team Obama is looking for real GDP growth of 2.3% in the final years of its budget projection, “markedly slower than the average growth rate of real GDP since 1947 of 3.2% per year.”

But this long-term slowdown isn’t historically or economically inevitable. As we have seen in recent years, policy can have a huge impact on factors such as labor force participation. (In this case, bad policy.)

Look at it this way: US GDP growth has averaged 3.3% over the past 50 years, with roughly half coming from a growing labor force (1.6%) and half coming from higher productivity (1.7%). But with America aging, annual labor force growth is expected to slow dramatically to just 0.5%. A higher retirement age and smarter immigration policy could boost that rate to 1% or so. But even then, productivity growth would have to increase to 2.3% long term just to maintain the historic US growth rate.

We can do this. Here are eight ideas. And here are another dozen, some of which I gleaned from two of my favorite books, Race Against the Machines and Launching the Innovation Renaissance:

1. Pay teachers more but get rid of tenure so the bottom five percent of teachers can be replaced by even average ones.

2. Encourage more high-skilled immigration.

3. Reduce regulatory barriers to new business creation.

4. Replace payroll taxes with more economically efficient ones.

5. Phase out and eliminate pricey and market-distorting subsidies like the mortgage interest deduction.

6. End Too Big To Fail.

7. Eliminate the tax code’s bias against investment.

8. Move toward market-friendly entitlement reform like Wyden-Ryan.

9. Create a patent system with the length of legal protection depending on the cost of innovation and imitation.

10. Establish more innovation prizes.

11. Have fewer kids in college getting liberal arts degrees, more in business-run worker training programs.

12. More investment in basic research, not in crony-capitalist, industrial policy schemes like Solyndra.

3 thoughts on “Obama White House: US likely faces ‘permanently slower’ economic growth

  1. Well, not really “permanently slower”. The aim is for BACKWARDS growth until the USA becomes a 3rd world country, which is only “FAIR” because the USA didn’t earn anything (as the thoughts of a guy who never had a real job thinks because he’s always been on the “dole”).

  2. The reason for the slowdown is the same as for Europe – when government (federal, state, local) dominates the economy through spending (vote buying) and regulation, and borrows a trillion+ per year, the economy and employment stagnate. In 1900 government was 10% of the economy. In 1950 it was 30%. Today it is 60% and still growing.

  3. Jim – this would then require the lazy oaf in office to stop playing golf and actually WORK at these sorts of recommendations. I for one hold no HOPE for this guy doing anything that would be good for the nation as a whole. Hunker down for another 3.5 years and wait it out.

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