G-g-g-g … growth. Remember that?
We had a decent (not great) run of it from mid-2003 through the end of 2007. It was driven by across-the-board income tax cuts and targeted investment-related cuts.
We had a nice run of growth during the late 1990s. It was driven not only by a key tax cut in the capital gains rate but also by John Kasich, who is running for Governor of Ohio. Kasich, as the Associated Press wrote in June 2009 when he announced his candidacy, “was the chairman of the U.S. House of Representatives’ Budget Committee in 1997 that balanced the nation’s budget for the first time in more than 30 years.”
As one can see from the graphic in the far right column of this blog (“Reaganomics vs. Obamanomics”), we had a really nice run of growth starting in the first quarter of 1983. It was driven by the Jack Kemp-Bill Roth tax cuts of 5%, 10%, and 10%, in 1982, 1983, and 1984. By the end of 1989, using annual growth figures (which differ from the quarterlies for reasons unknown), the economy was 34% larger. That’s why the period from 1983-1989 is appropriately referred to as “The Seven Fat Years.”
Replicating such growth wouldn’t be a panacea, but
it would go a long way towards it’s a prerequisite to addressing the country’s serious structural financial problems, which is why Daniel Henninger’s Wall Street Journal column today is so timely:
… it looks as if they (voters) are about to repudiate a formerly popular president who has disappointed them, throw over a Democratic Party they think has failed them, and hand power to a Republican Party they don’t trust.
… Ben Bernanke, speaking at this summer’s gathering of the world’s financial elites in Jackson Hole (said): “Central bankers alone cannot solve the world’s economic problems.”
Translation: Nothing the politicians have done works …
Solution No. 1 was to throw nearly $1 trillion of stimulus at the economy. But Keynes failed. Then they sprayed the economy with gallons of Chairman Ben’s Quantitative Elixir, or QE. Nothing happened. They could have extended the Bush tax cuts, but instead the Pelosi Democrats punted the subject past the November election, the equivalent of kicking the ball straight up in the air.
It looks to me as if there’s only one policy they haven’t tried: economic growth.
Economists dispute among themselves about a lot, but not about the proven wonders of strong economic growth. It creates jobs, increases individual wealth, reduces debt, and enhances national well-being. Strong, as opposed to the middling, economic growth the U.S. has now, is so vital that a great nation should want to do whatever it takes to get it.
With it, we win. Without it, we lose. Economist Paul Romer, in an essay on economic growth, bluntly explained why: “For a nation, the choices that determine whether income doubles with every generation, or instead with every other generation, dwarf all other economic policy concerns.”
The problem is that the Democratic Party is no longer able to sustain real growth policies.
The United States doesn’t have Eurosclerosis yet, but the Democratic Party does. That’s because the party has welded itself forever to the public-sector unions, as the social-democratic parties have in Europe (see the current wave of national strikes in Spain and France). Strong growth has no meaning to the public sector, so its political foot soldiers don’t waste time pushing it. Exhibit A is the Obama administration’s abandonment of trade deals with Colombia, South Korea and Panama.
The growth issue has defaulted to the Republican Party. That’s the pity. Hardly anyone in the party remembers how to give economic growth the starring role it deserves.
The last Republicans able to talk about growth as a crucial, creative, essential force, a driver of American prosperity and primacy (think the China threat) were Ronald Reagan, Jack Kemp and Steve Forbes. The current crop of Republican leaders and presidential contenders, about to be handed the opportunity of a generation, are in danger of reverting to the party’s austerity-only obsessions. Austerity-only policies are producing Europe’s riots.
Reducing spending, controlling entitlements, reforming public pensions—all of that matters. It’s important. But any population being asked to “sacrifice” needs to be able to believe something better is possible. That’s the challenge of political leadership.
… Voters—Americans—want the chance to do what they do best: work, innovate, compete. That’s the world of strong, long-term economic growth. What the Republican Party needs are leaders willing to do what’s necessary to get it.
Here’s an idea beyond tax cuts, which are of course still important: Apply Kemp-Roth to federal regulations. Cut ‘em by 10% a year for the next three years.
A Small Business Administration Office of Advocacy study (overview here) pegs their total annual cost to businesses at $1.75 trillion. That’s about 12% of GDP.
More than 50 agencies have a hand in federal regulatory policy, ranging from the Animal and Plant Health Inspection Service to the Bureau of Customs and Border Protection. Together, these agencies enforce more than 150,000 pages of rules, with purposes and impacts as varied as the agencies themselves. Many of these regulations provide needed benefits. … But each regulation comes at a cost–a “regulatory tax” imposed on all Americans.
No one can credibly claim that 150,000 pages of bureaucratic rules and regulations (300 reams of paper) are required to enforce the “rules of the game” and to accomplish appropriate regulatory goals, or that carefully culling 15,000 pages a year for the next three years can’t be done. Appropriately chosen, they would reduce the regulatory burden by at least $175 billion a year (10% of $1.75 trillion), but probably more, if we go after the most costly items with non-existent benefits first). The regulatory relief would reduce business costs, leading to a combination of increased tax revenues (because of higher reported profits) and higher economic growth (as freed-up business resources and reinvested profits are employed to pursue other economic opportunities).
Three years from now, we can then debate whether 105,000 pages (150,000 minus 45,000) are still too many. I’d bet on the answer being “yes.”
These would be “supply-side” cuts in the sense that they would increase the resources devoted to productive business and commercial activity.
Continuing on the current path, with the worst economic recovery in decades and pathetic economic growth currently projected as far as the eye can see, is, as Henninger notes, not an option.