The American economy has grown by 3.3% annually, on average, since 1950. To break it down: real GDP grew by 3.6% in the 1950s, 4.3% in the 1960s, 3.2% in the 1970s, 3.3% in the 1980s, and 3.5% in the 1990s. Since 2000, however, things have slowed markedly. RGDP growth has averaged just 1.8% through 2013, 2.6% in the 2001-2006 period and 1.1% in the 2007-2103 period.
Going forward, some analysts think economic growth has permanently downshifted. As Washington Post columnist Robert Samuelson noted today, economists at Morgan Stanley just cut their estimate of potential RGDP growth from 2.5% annually to 2%. The CBO pegs RGDP at 2.1% through 2014. In a report last year, JPMorgan economists wrote that the “long-run growth potential of the US economy continues to slide lower, by our estimate, to around 1.75%; if realized this would be the lowest of the post-WWII era.” Even the Obama White House has warned that growth in the 21st Century “is likely to be permanently slower” than it has been since World War II.
Samuelson wonders whether “the financial crisis and Great Recession mark a significant break with America’s dynamic economic past.” But the slowdown seems to have preceded the crisis, a phenomenon Larry Summers has attempted to explain via his “secular stagnation” thesis about chronic inadequate demand. And economist Robert Gordon has popularized the idea that the days of game-changing innovation are over. With population growth slowing, however, the US economy will need to be more innovative to keep growth high. Predictions of sluggish innovation and tepid growth are also central to arguments about rising inequality, as seen in the buzzy new book, Capital in the Twenty-First Century by inequality researcher Thomas Piketty.
My area of focus recently has been on how cronyism is stifling growth. US Senator Marco Rubio recently gave a speech at Uber’s Washington office about the regulatory piece of cronyism and how it affects innovation. Here is a key, on-point bit from the op-ed version of the speech: “Of course, the problem of anticompetitive, outdated regulations is not unique to Uber and it’s not unique to local governments. Entrenched interests are constantly protecting the status quo, creating new laws and regulations, and preventing the kind of disruptive changes that lead to new opportunities for entrepreneurs, workers and customers.”
Exactly right. And anti-growth, anti-innovation regulation takes many forms, from newsy attempts to quash Uber and Tesla to less high-profile occupational licensing schemes. Dodd-Frank financial reform may be the mother of cronyist laws. And don’t forget about attempts to strengthen intellectual property law to guarantee the revenue streams of powerful incumbents. As a new Joseph Stiglitz paper concludes:
We have shown that tighter intellectual property regimes, by reducing the newly available set of ideas from which others can draw and by increasing the extent of the enclosure of the knowledge commons, may lead to lower levels of innovation, and even lower levels of investment in innovation, as a result of the diminution in the size of the knowledge pool
Advocates of stronger intellectual property rights, while noting the positive partial equilibrium effects, have ignored the even more important general equilibrium effects. The real lesson is that considerable care is needed in designing intellectual property regimes, with particular focus on the extent to which any particular regime increases or diminishes the technological opportunities upon which others can draw.
What we may be seeing is the clogging of the American Growth Machine, one regulation and rule at a time.