“[W]e are not going to get back to 3 percent [growth] with anything we know how to do now.”
That was former Congressional Budget Office director Douglas Elmendorf, ominously warning that the 15-year slowdown of the nation’s Gross Domestic Product (GDP) — wherein the economy has not grown above an inflation-adjusted 4 percent since 2000 and not above 3 percent since 2005 — is not ending anytime soon.
Elmendorf was quoted in the poorly titled piece from the New York Times’ Eduardo Porter, “A growth rate weighed down by inaction.”
As if government action intervening in the economy and the culture the past many decades was not among of the primary causes of the growth slowdown to begin with.
That is, government intervention in housing markets with an unparalleled credit bubble in the 1990s and 2000s, in the manufacturing sector via globalization, outsourcing and making it cost prohibitive to make products in America, and in the realm of population control with abortions and birth control on demand.
For, it is the collapse of production inside the U.S., $8.7 trillion of trade deficits since 2000 and the slowdown of population growth of the working age population that have all been key contributors to the slow economy.
After all, if not through an expansion of output, an increase in labor force participation and consumption, and by running surpluses, where exactly did we expect more growth to come from? More productivity?
In other words, when it comes to economic growth, there is no replacement for, well, growth. Start making more stuff here, and selling it, and the economy will grow. People will find more jobs. Increased demand for labor will drive up incomes. That in turn will boost consumption.
But it starts with incentives, something the current economy lacks — particularly when it is far more cost-effective to produce things in currency-manipulating, slave wage states like Malaysia or Vietnam. Plus, a regulatory environment that would make the Soviets blush.
This has all led to a flattening of income growth thanks to low demand for labor, to lower inflation and now even a flattening of asset prices.
The output, population growth and trade deficits have all on their own contributed to the mass accumulation of debts public and private that in turn has led to even slower growth. Nominally, the national debt grew 5.7 percent in the past 12 months. Compare that to 2015’s nominal economic growth — that is, before inflation adjustment — of 3.5 percent.
If those numbers remain true, by 2050, the national debt would be $140 trillion, while the economy would be just $60.9 trillion — a debt to GDP ratio of 229 percent. That is unsustainable, even with low interest rates.
None of which are really addressed by Porter’s prescription for a combination tax overhaul and big government spending, relaxed immigration rules, day care for stay-at-home parents and attacking local zoning restrictions on building in order to boost growth. They won’t bring production back to the U.S. The new immigrants will only add to our surplus labor stock and depress wages even further. More day care won’t create new jobs for current stay-at-home parents. And if municipalities don’t want to build more housing, that’s their business, not the federal government’s.
If the U.S. is serious about growing again, then the U.S. needs to become a place where it is profitable to not only do business, but to make things. We need industrial output gains. Enough of this boosting productivity nonsense. Boost production, for goodness’ sake.
Elmendorf is correct that we won’t get back to 3 percent growth any time soon. That is, not with the current wheelhouse of policy proposal typically considered by the two parties in Washington, D.C.
So long as the government stands in the way to growth, we should not expect any. Which is too bad, because at the rate the debt is growing, the U.S. needs to grow — or die.