Why Growth Is Getting Harder

The Cato economist, Brink Lindsey, has just issued a new report, “Why Growth Is Getting Harder”.  See also Robert Samuelson’s Op Ed in yesterday’s Omaha World Herald, “Economic growth potion slowing to anemic trickle”.  Annual GDP growth has averaged over 3% since 1950.  But for the past four years, since the end of the Great Recession in June 2009, it has averaged barely 2% annually and, as Mr. Lindsey notes, this low growth rate is widely predicted to continue.
Historically the rate of GDP growth is attributed to four factors:

  • greater labor force participation, mainly by women
  • better educated workers, as reflected in high school and college graduation rates
  • more invested capital per worker
  • technological and organizational innovation

For example, women’s labor force participation went from 30.9% in 1950 to 59.9% in 2000.  Since then it has started to lag.  The national high school graduation rate is stuck at about 70% and realistically can’t go much higher.  Mr. Lindsey shows that both the national savings rate and domestic investment rate have been falling steadily since 1950.  Productivity growth was high from 1950 – 1979, high again from 1996 – 2004 and has fallen off again since.
Mr. Lindsey concludes “In the quest for new sources of growth to support the American economy’s flagging dynamism, policy reform now looms as the most promising “low-hanging fruit” available.”
What policy changes and improvements will counteract these negative trends?  Here are several more or less obvious suggestions:  Immigration reform can bring our 11,000,000 illegals into the main stream economy.  Education reform, especially including an early childhood emphasis, will improve the quality of education for low-income kids, and maybe even boost graduation rates.  Tax reform, with lower tax rates (offset by closing loopholes) has much potential for boosting investment and risk taking, as well as for boosting innovation and entrepreneurship.
Faster economic growth is so beneficial for so many reasons, that we should insist that our national leaders make it a top priority.  Ideological objections, such as providing “tax breaks for the rich” are not acceptable and must be constantly batted down!

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