Economic Growth

Healthy Economic Growth Is Our Missing Ingredient

Jeb Bush's 4 percent plan deserves more attention.


Jeb Bush
Credit: Gage Skidmore / photo on flickr

This year's Republican presidential race has generated an unusual number of unusually bad ideas—Donald Trump on Muslims, Ted Cruz on carpet bombing, Marco Rubio on male footwear. It has also has produced one of the best: Jeb Bush's 4 percent plan. 

No, that wasn't his desired share of the vote in the Iowa caucus, where he got less than 3 percent. It's his goal for annual economic growth, which he argues would "restore the opportunity for every American to rise and achieve earned success." 

When Bush said last June, "There is not a reason in the world why we cannot grow at a rate of 4 percent a year," a chorus of critics said, actually, there are several reasons we cannot. They have a point in terms of how much additional growth we could attain. But Bush has a better point about the value of raising it. 

Four percent annual growth in gross domestic product, adjusted for inflation, used to be common. In the 1990s, the economy managed it in five out of 10 years and came close in two others. But we haven't done it once in this century. Over the past decade, the average rate has been 2.2 percent. 

The consequences of this decline are uniformly awful. It's a big reason the number of people with jobs has risen so slowly. It's a big reason wages have been stagnant. It's a big reason the federal debt has grown so rapidly. It's a big reason … well, think of a problem, and slow growth has probably made it worse. More bad news: The Congressional Budget Office expects real GDP to expand at an average of only about 2 percent over the next decade. 

Hoover Institution economist John Cochrane thinks this issue is of paramount importance. "Once you start thinking about growth," he says, "you have trouble thinking about anything else." 

In 1950, GDP per person in the United States, in today's dollars, was about $14,000. Today, it's around $51,000. We moved from relative poverty to relative wealth through the magic of compounded economic growth. 

In that process, seemingly small changes can make a big difference. If we were to grow at an annual rate of 3.5 percent instead of 2.2 percent (CBO's long-run projection), Cochrane says, our annual real GDP (and federal revenues) in 2040 would be 38 percent greater than with the slower growth. 

The benefits of faster growth are hard to exaggerate. For the average American worker, the greatest wage gains in memory came in the 1990s, when the economy was at full speed. Unemployment fell below 4 percent, the proportion of people in the labor force set a record, and personal earnings rose—even as corporate profits climbed. 

The number of people getting food stamps plunged. The federal budget deficit became a surplus. The African-American unemployment rate shrank to the lowest on record. 

A slowdown has the opposite effects. Much of the angry mood evident among voters who flock to Donald Trump, Ted Cruz, and Bernie Sanders comes from our chronically dismal economic performance. 

But the subject of boosting growth has been mostly ignored in the campaign. Bush has talked about it sparingly. His GOP rivals have spent most of their time on terrorism and immigration. Sanders and Hillary Clinton would rather talk about redistributing income than enlarging the amount distributed. 

They should grasp that there is no better way to help workers than the tight labor markets seen in a humming economy. There is no better way to afford government programs for the need than a larger economy. Conservatives should know it's easier to shrink government spending as a share of GDP by increasing GDP than by cutting outlays. And nothing else does so much to reduce dependence on government aid.

How to speed up growth is not a simple question. Cochrane, like most other economists, thinks a simpler tax code with lower rates would help. So would regulatory reform to foster clear rules and quick government decisions. Easing state licensing rules for various occupations, ditto. 

There is no universal agreement on how to stimulate more rapid economic expansion in a lasting way. But there should be unanimity on the value of doing so. The first step in boosting growth is for politicians to give it the priority it deserves. 

Faster growth, granted, is no panacea … No, correct that: Faster growth is a panacea.

© Copyright 2016 by Creators Syndicate Inc. 

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  1. “The first step in boosting growth is for politicians to give it the priority it deserves. ”

    Jesus, Trumpism appears to be contagious.

    Make America Grow Again
    When I’m president, we’ll have so much growth you won’t believe it. Tremendous growth! Fabulous growth! Splendiferous growth! It will be tremendous! Everyone will love it!

    1. It will be huuuuge!

    2. If another Bush EVER wins the presidency I’m leaving the country for good.

      And I blame Ronald Reagan for the catastrophe we call America in 2016.

      If it wasn’t for Reagan we wouldn’t have the illegal alien problem we have today.

      We wouldn’t have had George H. Bush lying about raising taxes.

      We wouldn’t have had The Clintons.

      We wouldn’t have had W. Bush and his pointless Iraq war.

      We wouldn’t have had John Roberts.

      We wouldn’t have had Obama and his disastrous Obamacare.

      And we wouldn’t have Hillary as our most probable next president.


  2. We Need More Focus on Economic Growth: New at Reason

    Oh crap, another beg-o-thon is coming up, isn’t it? Did you guys blow through all the money already?

  3. The first and only step to boosting growth is to get the fuck out of the way!

    1. Growth is messy and uneven and chaotic and glorious.

      Hmmm…my campaign slogan:

      robc 2020 – Messy. Uneven. Chaotic. Glorious.

      Should I start printing the bumper stickers?

    2. But you can’t be assured that the correct people will benefit from that economic growth unless it is managed and directed by Top. Men.

      1. After all, what’s the good of economic growth if you can’t direct it toward your cronies?

    3. ‘Get the fuck out of the way’ is no longer possible. Has nothing to do with whether voters want govt to get out of the way – or pols will get govt out of the way. It is no longer a matter of will but of math. We are not starting from a clean slate here. Over the last 70 years, we have accumulated debts out the wazoo – public and (mostly) private. Debts are, basically, the past imposing itself on the present and future. As long as those debts exist, they take the first share of growth because the only way new capital can be freed up to finance that growth is for the cost of capital to rise. It essentially becomes a tax – by the financial sector – on the rest of the economy. With a current total (household/corporate/public) debt-to-GDP ratio of about 350%, that means that that financial tax elephant is 3x bigger than the economy that is supposed to keep it fed.

      The financial sector elephant in the US long ago outgrew the ability of the US economy to keep it fed. And the core problem here is not something that ‘the market’ can deal with alone – because it is the unit of account and the monetary system that is the source of the problem. It is a long-term (multigenerational) credit cycle that gets out of whack. And AFAIK, the last innovative ‘idea’ to deal with the problem was the 50-year ‘Jubilee Year’.

      1. Interest on the debt institutionalizes the subjection of the tax cattle to the monied interests.

  4. For all of Jeb’s failings as a candidate and potential president, he’s right on this one. Better economic growth would solve a lot of our current problems. Normal growth used to be between 3% and 5%. And I suspect that much of our current growth is actually government expansion (which should not be included in GDP). Jeb should make this one of this campaigns memes and make a point of all the regulations added by our current socialist in chief (some 4,000 pages added to the federal register in 2015 alone).

    1. Aw c’mon, government churning money adds to our well being

      1. +1 multiplier effect

      2. +1 multiplier effect

  5. There is no universal agreement on how to stimulate more rapid economic expansion in a lasting way.

    It would probably help a bunch if the priority shifted from “micromanaging the populace for cheap control-freak thrills and predatory siphoning” to “rapid economic expansion”.

    1. My campaign promise would be to survey small business to see what regulations stifle their growth the most and cut that. Pro growth, pro SMALL business, revenue neutral. The plebes would eat it up.

      1. That is exactly what governor LePage did here in Maine. The left couldn’t criticize him enough for “pandering to the rich.”

        1. D-Smooth guy? And that’s what they went after him over? Did it work, the growth I mean.

          1. There are so many other factors in play that it is hard to tell. Thing is, getting rid of burdensome regulation means someone is going to potentially get rich, and that is just plain evil as far as the left is concerned. After all, the economy is a zero-sum game, so whenever someone gets rich then that means a whole bunch of people were made poor.

            1. It’s just common sense, really.

    2. Right. There’s really no way to stimulate the economy. Getting out of the way would do some great good, though. People will buy and sell and create value on their own.

  6. “There is no universal agreement on how to stimulate more rapid economic expansion in a lasting way. But there should be unanimity on the value of doing so. The first step in boosting growth is for politicians to give it the priority it deserves. ”

    So you’re telling me that Jeb had the audacity to opine that 4% growth is better than 2% growth?
    And that so uniquely distinguishes him from any other candidate that it warrants a special article about his 4% plan?

    And by the way, not to nitpick, but will there be a followup article where a “plan” is described? Because saying “4% is good” is not a plan.

    Hold the presses. What the hell are we going to talk about if somebody comes up with a 5% plan? It’s going to make Jeb look like a moron! He’s probably got a 6% plan in his back pocket just in case.

    1. I’m just glad Jeb has the courage to be in favor of things that everyone wants.

    2. Plans? Who needs those? The parries’ primary contests have gone just great without those annoying things.

      1. Parties, not parries.

        Where’s our edit button?

    3. Chapman’s just saying it would help if in policy consider’ns, priority were given to anticipated effects on the economy.

  7. Instead of devoting a column to talking about how nice it would be to enjoy 4 percent growth, it might be nice to devote a column (or two) that talks about how to get 4 percent growth. Elect a president named Clinton? According to Steve, it worked in the 90s.

    1. It only worked in the 1990’s because the total debt-to-GDP ratio then was only about 250%. And even in the 1990’s the only part of the economy that really grew was the financial sector – and even in the latter 1990’s most of that growth was solely in the form of temporary asset-price bubbles (dotcom/dollar-denominated credit bubble in Asia/etc). The last time the manufacturing/make-stuff sector sustainably grew at that sort of rate – the late 1940’s thru early 1970’s – total debt-to-GDP was 150%.

      Like it or not, there is a pretty rigid connection between marginal economic growth (the economy’s income statement) and marginal debt/GDP (the economy’s balance sheet). And we’ve spent decades incurring debt (public and private) on stuff that could not remotely be called an investment. All of that debt remains a dead weight. It can’t just be ‘paid off’ in a debt-based monetary system. So it will strangle everything until it is repudiated by some generation that says ‘no mas’.

    2. Instead of devoting a column to talking about how nice it would be to enjoy 4 percent growth

      No. This was a very informative article. I had *no idea* 4% growth would be better than 2% growth.

  8. “Jeb Bush’s 4 percent plan deserves more attention.”

    So does his role in what happened to Barry Seal.

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