Economic Growth

A Recipe for Economic Growth in the New Year

Americans instinctively know we're on the wrong track.



With the beginning of a new year comes the hope for change. There is so much we could wish for—peace, the end of poverty or social tensions, and fulfillment for all. The thing is that the best way to get many of these goals is through a tired but so true refrain: Create economic growth. It seems obvious to many of us, yet it's so important to get right that it bears repeating over and over again.

Our country isn't growing as fast as it could. The Congressional Budget Office projects that without any recessions—an unrealistic assumption—the economy won't grow any faster than 2 percent annually for the next 30 years. If you wonder what that feels like, look no further than the past 16 years. Since 2000, gross domestic product has grown by 1.78 percent annually on average, which pales when compared with 3.67 percent from 1983 to 2000.

No wonder almost 70 percent of Americans think we're on the wrong track. They instinctively know that the faster the economy grows the more they prosper. As my colleague William Beach and I recently calculated, if the economy were to grow at only an inflation-adjusted 2 percent rate, it would take 35 years for the size of the economy to double. If the economy were to grow at a 3 percent rate, it would take 23.5 years to double, whereas it would take only 17.7 years with 4 percent growth.

The foundation for economic growth is also the central message Larry Kudlow and Brian Domitrovic write about in their book, JFK and the Reagan Revolution: A Secret History of American Prosperity. There's no better time for the authors to remind us that attaining economic growth isn't that complicated. First, you start with three indispensable building blocks: property rights, the rule of law and sound money. Without those, they explain, it's very difficult to enjoy robust and strong growth.

The next step to boost the economy is a combination of low taxes, smaller government, free trade and predictable labor laws and regulations. The more of these policies the government gets right the more economic freedom we enjoy. As my colleague Matthew Mitchell documented, there is a solid and positive association between economic freedom and economic growth. Better yet, economic freedom also leads to a reduction in homicide rates, and it's positively related to the female empowerment index, the promotion of tolerance and so much more.

Unfortunately, the United States has lost its way. The Fraser Institute's Economic Freedom of the World index shows that between 2000 and 2016, the United States went from second in the world to 16th. As we fell in the ranking, so did economic growth. Unlike Presidents John F. Kennedy and Ronald Reagan—both of whom, Kudlow and Domitrovic remind us, "identified substantially cutting income tax rates and getting the dollar strong and stable as the specific policy mix that would let the private sector, which is to say the real economy, thrive"—today's Republicans and Democrats have forgotten the basics of prosperity.

There's a lot to do. Individual tax rates aren't as high as they were in the 1960s and '80s, but growth is stampeded by the hideous tax code's complexity. The corporate rate is the highest of all developed nations and must be cut to boost growth. The incredible growth of regulation and its negative effect on prosperity are well-documented and require immediate attention, as do the size and scope of government.

Now, it's true that depending on the income distributions, lower-income people may benefit significantly less from growth than those at the top. Yet without economic growth, we can forget about making a meaningful and sustained reduction in poverty.

Look at the impact the slow economic growth since 2007 has had on the bottom half of the income distribution. The Obama administration's massive stimulus spending, new taxes and overregulation have produced the slowest economic and labor recoveries since World War II—and as a result, median household income has yet to regain its 2007 level.

As Kudlow and Domitrovic remark, 15-plus "years into the twenty-first century, Americans are in a sour mood. They are cranky. Unhappy." It doesn't have to be this way. Whether the Trump administration will awaken the aforementioned policy formula (which includes free trade) from its long sleep to revive prosperity remains to be seen.


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  1. Without reading the article I’m guessing it involves an impregnable border wall, a massive surveillance state dedicated to restricting the activities and movements of certain segments of society, punitive tariffs and taxes for businesses with the unmitigated gall to be not American, and dumping subsidies and tax incentives on well-connected elites who promise to create shitty manufacturing/service jobs that somehow never materialize.

    Oh, and of course ever-increasing deficit spending to pay for it all.

    1. And you be completely wrong. Maybe you should read 1st, comment after….

  2. This is a painfully poor performance. 4% economic growth over decades? Well, France achieved that from 1950 to 1970, so I guess we need to force all American workers to join a communist-led union. We already know what Donald Trump is going to do–the same thing that Ronald Reagan and George Bush did. He will cut taxes and increase spending. This “worked” under Reagan but not under Bush. Why, it’s almost as if similar policies under dissimilar circumstances have dissimilar outcomes!

    For the entirety of President Obama’s first term, “Reason” predicted economic disaster, inflation being the particular bogy. Then, I guess the staff got tired of signing their names to predictions that never came true, so instead talking heads were imported to predict doom and destruction. Now, eight years after, the U.S. economy is, amazingly enough, one of the healthiest in the world, successfully navigating the worst economic crisis since the Great Depression using basically Keynesian tactics. Sorry, Reasonettes, but you got it all wrong for eight long years. And you never admitted any of your errors. Unimpressive.

    1. Unemployment higher than in a long time? Check.
      Stagnant economic growth? Check.
      Massive new regulations which stifle and sufocate small businesses more than big businesses? Check.
      Enhanced War On (Some) Drugs? Check.
      More warring everywhere? Check.
      More racial and class tension? Check.
      More executive power? Check.

    2. Now, eight years after, the U.S. economy is, amazingly enough, one of the healthiest in the world

      AKA, the tallest midget. And it’s an illusion anyway, as you and the other Keynesian clowns will discover when you are yet again blindsided by the current economic bubble popping.

      Oh, and check it that sweet labor participation rate.

      1. Oh, and reinflating the bubble only cost us $9.3 trillion in debt over eight years, with trillion dollar deficits projected without end as far as the eye can see.

        Yeah, that’s a perfectly healthy and sustainable model alright.

        1. That debts not a big deal because we owe it to ourselves.

          1. We owe it to ourselves to just let loose every now and again? You know, just splurge on something just for us.

            1. What did you get for your $30,000 share of increase in debt in those 8 years Raven?

              Frankly, it’s money that won’t be paid to “ourselves” because the real debt is closer to $200 trillion when you add in the net present value of planned Social Security and Medicare spending minus the net present value of estimated Social Security and Medicare revenues. And we don’t have that kind of money (adding up the value of all US private and public assets).

    3. inflation

      With the exception of a dip to 2% in 2010 and a spike to 10% in 2012, it has pretty much been running 5-7% during the Obama years.

      Its not hyperinflation, but it isnt the non-existent inflation that the government has been trying to sell.

      1. Its being hidden by changes in reporting standards.…..ion-charts


      1. Sounds like a kid’s book I read back in ’65 or so.

    5. Ah, the town phrenologist comes in to tell everybody how great he is at diagnosing the economy based on the bumps on our heads. Forgive me while I chortle at the inanity.

    6. Observably false economic claims? Check.
      Silly nickname? Check.
      Blind adoration for the outgoing POTUS? Check.

      It almost looks like Alan Vanneman might be the guy who’s been running the shreek puppet all these years. Wait a second… An Anal Maven… Palin’s Buttplug… OH MY GOD

    7. “. Now, eight years after, the U.S. economy is, amazingly enough, one of the healthiest in the world, successfully navigating the worst economic crisis since the Great Depression using basically Keynesian tactics. Sorry, Reasonettes, but you got it all wrong for eight long years. And you never admitted any of your errors. Unimpressive.”

      Haha haha please tell another one. That was awesome!

  3. With the beginning of a new year comes the hope for change.

    God no, he’s supposed to be leaving.

  4. Now, it’s true that depending on the income distributions, lower-income people may benefit significantly less from growth than those at the top.

    And yet if Fist of Etiquette gets a million dollars and I get fifty thousand, we are both better off.

    I’m cool with this.

    This is a fantastic article. I want to quote everything else, with a lot of exclamation points and “what she said”. De Rugy makes me want to stop making jokes at the expense of the French.

    1. Bastiat, de Molinari. The Frogs have actually produced some good economic minds.

      1. Yeah, but I can’t imagine that they fire rubber bands at the back of Robby’s head because it helps them think.

    2. None of us are better off if Fist becomes richer. He just uses it to do Fistier things, and thus we all fall from the light.

      1. It’s not like he could comment on the links threads any faster than he already does, though.

        1. If he becomes more powerful then soon his post will be the article and the first comment will be the actual article.

          1. Nobody reads the articles. Would anyone even notice if that happened?

            1. Wow, yesterday I found out that porn stars have faces, and today I found out that comment sections have articles. What possibly could tomorrow bring?

  5. Recipes for economic growth:
    Tom Freidman: make Obama dictator for life
    Paul Krugman: Nuke all of the flyover states.

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