From 1946 to 2000, America's GDP annual growth rate averaged 3.5% and the country prospered. This growth occurred despite nine recessions "“ yes, nine "“ over the period. Since a recession is a pause or contraction in growth, the American economy actually grew by 4% or more in non-recessionary years.
It is tempting to look at the 1946 to 2000 period and analyze it as an anomalous break in history during which America essentially had no big problems and no serious global competition "“ hence the robust growth and happy memories. But that isn't true. The immediate post-war years were burdened by a federal debt load that had peaked at 120% of GDP during the war. The economy also had to absorb millions of men back from the armed forces.
The 1950s economy was hampered by a federal government strangely hostile to innovation. These were the days when monopolist AT&T could “forbid attachment to the telephone of any device not furnished by the telephone company." The American government agreed.
The 1960s economy faced a near nuclear war in 1962, JFK's assassination in 1963, race riots, political riots and more assassinations in 1968.
The 1970s economy began with a mild recession and then suffered a huge one in 1973 and 1974, when stocks fell 48% and unemployment hit 11% amidst OPEC oil embargoes and scandal driven resignations of the American vice president and president. In 1979 President Jimmy Carter gave a speech "“ the infamous malaise speech "“ that blamed his fellow Americans for the poor economy. The decade ended with long gas lines yet again and interest rates headed to 20%.
If you have fond memories of the 1980s economy, perhaps you weren't really there. The decade began with the recession of 1980. Then Paul Volcker got serious and lanced the inflation boil once and for all. This led directly to a short but very nasty recession in 1982, when unemployment soared over 10%. In 1987 came a one-day stock panic that saw the Dow drop 22.6%. The go-go 1980s came to a close with yet another recession looming.
The 1990s began with a recession that saw an American icon, IBM, nearly go bankrupt. Bill Clinton beat George H. W. Bush on a slogan, "it's the economy, stupid." Clinton was helped by the third-party candidacy of H. Ross Perot, who claimed that Japan and Mexico were destroying the American economy.
Yet during all this time, from 1946 to 2000, America prospered and grew rich.
To say that America in 2011 faces tougher challenges than the country has faced before is not true. Our problems are not new or harder. Perhaps the political will is weaker; perhaps we are suffering a perfect storm of monetary malpractice and bipartisan incompetence. But our problems are surmountable.
The answer to America's problems is obvious, but it seems to evade politicians of both stripes. The answer is growth. When is the last time you heard President Obama or any of the Republican presidential candidates talk seriously about economic growth?
America's economy, in GDP terms, is a bit over $14 trillion. Growth from this base would add per year:
1% $140 billion
2% $280 billion
3% $420 billion
4% $560 billion
5% $700 billion
6% $840 billion
7% $960 billion
8% $1.1 trillion
Growth matters. It's the whole ballgame. Growth creates mass prosperity. Growth gives hope. Growth pays for mistakes. From 1946 to 2000, the American economy averaged 3.5% growth per year. At that level, all of our national problems and worries, cited in the preceeding paragraphs, were manageable. From 2001 to 2010, the American economy slowed to 1.7% annual growth. All of our problems — deficits, debts, unemployment, sagging confidence – got worse.
So it seems obvious that politicians should be talking, often and loudly, about growth. Why aren't they? President Obama is on record saying he favors fairness over growth if forced to chose. Fairness over growth gets you 2.0% to 2.5% annual growth, typical of the Western European social welfare states. In any given year, the difference between 2.5% growth and 3.5% growth isn't that much (though actually it would be $140 billion of incremental output in the U.S.). But over a decade or generation a 1% annual difference, compounded, is huge.
Americans owe it to future generations to get our GDP annual growth back to the 3.5% range. We've done it, and we can do it again. Here is how:
– Strong and stable dollar
– Get federal share of GDP back under 20% (from 25% today)
– Simpler, flatter tax rates
– Lower corporate tax rates, in line with global competition
– Simpler, transparent regulation
– Pro-energy policy
– Immigration policy favoring skilled immigrants
– Stop war against business (e.g., Obama's war on Boeing)
– Ban public employee unions
– Education reform (must break up teachers' unions first)
– Patent reform (which currently favors large companies over entrepreneurs)
In my opinion, Obama is a lost cause on economic growth. His opposition to Boeing building its 787 production plant in right-to-work South Carolina is the final straw. All that centrist, mildly pro-business talk following the 2010 elections was a ruse. With Boeing, Obama has put his cards on the table. This supposedly smart president apparently can’t calculate the difference that 1% additional growth makes on the long-term fortunes of the American economy. He would sacrifice that 1% additional growth for fairness (as defined by him) and destroy the American dream for the next two generations.
The mystery is why Republicans are not hammering away at growth. Mitch, Mitt, Newt, Huck "“ are you listening?
To end on a brighter note, Friday I will interviewing AOL founder, Steve Case, at the annual TiECON 2011 conference "“ the largest conference in America for entrepreneurs. Politicians have injured us. The antidote to political cowardice and stagnation is entrepreneurial boldness and growth.
's Categories: byline=Rich Karlgaard, Economics, Entrepreneurs, Op/Ed, Uncategorized
Rich, a big A-MEN to you!!! I couldn’t have said it better. If we don’t start to see decent growth soon, the next recession (and it’s coming!) will hurt us more because our economic base will be lower.
52%of AMERICA think this guy is doing a good job!! I think other 48% are not on drugs!!!
Two weeks ago (Apr 29th) The Wall Street Journal published an editorial entitled “The Keynesian Growth Discount.” It’s obvious that the Keyesian model, firmly in place for the previous 3 years, has failed. If this doesn’t change soon, we’re in for a healthy bout of STAGFLATION.
Rich,
It’s hard, if not simply impossible to argue that we need to get back to growth. Conterintuitive to think that we can continue to go on this way without it costing us a lost decade-or worse.
All that said, some of us believe the political warfare is more about how we get there–not that we need to get there. The end game is at stake, what kind of nation are we becoming?
We need to stop throwing the baby out with the bathwater by thinking the solutions to our problems are free rides for corporations, trickle-less tax breaks for rich people (sorry) and moving anything and everything possible offshore to side-step a moral imperative to help make us strong from the inside out.
We’re in a global world now and the issues are more complex. With this in mind, my response to selected points of yours are:
1. Fix China’s currency war against the US. Our dollar and it’s value is lying flat under the belly of the tiger. Without this fix, we stand to loose more than we could gain by value enhancement, etc.
2. Get federal share of GDP back under 20% (from 25% today) by increasing private investment in the United States, getting people back to work and seeding innovation. Fed share and GDP are variables that interact with eachother. The war on social programs is a non-starter. Hate to say it but our capitalist system likes it’s bits and isn’t going to cave on this. There is a role for government–the polls say so.
3. Simpler, flatter tax rates for personal income tax for ALL but the big boys and girls need to pay up. They, of course, are benefiting from the system. My father believed that paying more taxes was an honor. What ever happened to civic responsibility—for everybody.
4. Lower corporate tax rates, in line with global competition, is great as long as you remove the loop holes, corporate welfare and obstacles to collecting taxes on cross-border funds exchanges (corporate assets coming back in from outside).
5. Simpler, transparent regulation with teeth that in fact materially penalizes corporations for bad behavior. Save a fortune on legal theatre. Most Americans are furious with the lack of transperancy and accountability. Dodd-Frank falls woefully short of this objective. Not the opposite.
6. Pro-energy policy or pro oil company benefits? Yeah, if you mean energy policy that focuses on something other than present practice. And if it involves energy from something other than oil. It’s a difficult addiction but the dealers certainly have a lock on the market.
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