Is Growth Over?
In a recent New York Times op-ed column, Is Growth Over?, the Keynesian economist Paul Krugman argues that our current information technology revolution may not be potent enough to increase our economic growth rate beyond the American historical average of about 2%.
As much as we hope for a faster rate of growth, let’s assume that he is correct. In fact our average rate of growth for 2010 – 2012 (since the recession ended in June 2009) is 2.1%. What are the economic implications of 2% growth indefinitely into the future? They are slower job growth, higher unemployment and therefore lower tax revenue.
High unemployment is bad enough for the millions of unemployed and underemployed. But the fiscal implications are much worse because they affect the entire country. We’ve already had four years in a row of trillion dollar deficits and the 2013 budget projections don’t look any better. So continuing our present course presents a grim outlook, to say the least.
What are the alternatives? We have two choices. One is to boost the private sector with measures like pro-growth tax reform, relaxing onerous regulations, boosting domestic energy production and promoting international trade. If such pro-growth policies are not politically doable, then the alternative is massive tax increases and spending cuts.
Our first priority must be to rapidly shrink the federal deficit down to zero. Otherwise we are inviting fiscal calamity which can hit at any time without warning. Fiscal conservatives should always remain focused on this #1 problem. If no agreement can be reached for a rational plan to significantly reduce the deficit, then get the job done anyway that is possible.
We have got to wake up the American people to our urgent fiscal condition. If going over the cliff is what it takes, then so be it!