From 1948 through 2007, the US economy grew by an average of 3.4% a year, adjusted for inflation. Real GDP grew by 3.1% in the 1950s, 4.5% in the 1960s, 3.2% in the 1970s, 3.4% in the 1980s, 3.9% in the 1990s, and 1.7% in the 2000s. Now the decades don’t match up perfectly with business cycles, but you get the picture.
The new Obama budget, however, accepts a “new normal” growth potential of just 2.3%. Its new economic forecast sees growth accelerating over the next few years, GDP expanding by 3.4% in 2015, 3.3% in 2016, 3.2% in 2017 and 2.6% in 2018. But starting in 2021, the White House just inserts its estimate of long-term GDP potential of 2.3% for its forecast.
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.
Now there is nothing exceptional about this analysis. The CBO says much the same thing. It’s the acceptance of it I don’t much care for. Current public policy is hardly optimal for either labor force growth or innovation. I think a reasonable national goal should to reverse this deceleration so the US grows in the future as in the past, or nearly so.
Or maybe even do a bit better. There is some reason to think that postwar GDP growth, as strong as it was, could have been much stronger. A 2013 study from economists John Dawson of Appalachian State University and John Seater of North Carolina State University, “Federal Regulation and Aggregate Economic Growth,” estimates that the past 50 years of federal regulations have reduced real GDP by roughly two percentage points a year, or nearly $40 trillion.
Or consider this: the US has suffered 14 major banking crises over the past 180 years, as documented by Charles Calomiris and Stephen Haber in their new book, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, including 1930-3, the 1980s, and 2007-09. Imagine how much further along the economy would be if the world’s most entrepreneurial nation had, like Canada, avoided so many crippling and costly financial shocks.
And how much growth did we cost ourselves with the high tax rates and expanding regulation of the 1950s, ’60s, and ’70s? Or the runaway inflation of the 1970s?
An economy growing at 3.4% a year will be a third bigger after 25 years than one growing 2.3% annually. Either way, of course, Americans will be much richer. I think that’s important to point out. But think of the greater opportunities in the former scenario, and the greater resources to deal with the biggest national challenges.
Here is Ronald Reagan in 1979:
Someone once said that the difference between an American and any other kind of person is that an American lives in anticipation of the future because he knows it will be a great place. Other people fear the future as just a repetition of past failures. There’s a lot of truth in that. If there is one thing we are sure of it is that history need not be relived; that nothing is impossible, and that man is capable of improving his circumstances beyond what we are told is fact.
There are those in our land today, however, who would have us believe that the United States, like other great civilizations of the past, has reached the zenith of its power; that we are weak and fearful, reduced to bickering with each other and no longer possessed of the will to cope with our problems.
Much of this talk has come from leaders who claim that our problems are too difficult to handle. We are supposed to meekly accept their failures as the most which humanly can be done. They tell us we must learn to live with less, and teach our children that their lives will be less full and prosperous than ours have been; that the America of the coming years will be a place where – because of our past excesses – it will be impossible to dream and make those dreams come true.
I don’t believe that. And, I don’t believe you do either. That is why I am seeking the presidency. I cannot and will not stand by and see this great country destroy itself. Our leaders attempt to blame their failures on circumstances beyond their control, on false estimates by unknown, unidentifiable experts who rewrite modern history in an attempt to convince us our high standard of living, the result of thrift and hard work, is somehow selfish extravagance which we must renounce as we join in sharing scarcity. I don’t agree that our nation must resign itself to inevitable decline, yielding its proud position to other hands. I am totally unwilling to see this country fail in its obligation to itself and to the other free peoples of the world.