Prospects for future economic growth are decidedly grim. The Congressional Budget Office has just reported that after a brief improvement for a couple of years, annual GDP growth will likely hover around 2.2% for the remainder of the ten year window 2015 – 2025. This means, in turn, that the unemployment rate will also not likely fall much below its current level of 5.7% for the same ten year period.
A new report from the McKinsey Global Institute makes the even gloomier prediction that average U.S. GDP growth rate for the next 50 years will be only 1.9% per year, given current trends and policies. A summary of this report is provided by the Brookings Institution social economist, William Galston.
On the other hand, according to New York Times columnist, Nate Cohn, the Democratic Party may be adopting a new policy direction, “The Parent Agenda, The Democrats’ New Focus.” By this new focus he means:
- Paid family leave
- Universal preschool
- An expanded earned-income tax credit and child tax credit
- Free community college
- Free four year college in time
Mr. Cohn points out that both President Obama as well as Hillary Clinton have endorsed such ideas. Initiatives such as these are unlikely to go far in the current Republican Congress but they may still sound very attractive to the many hard-pressed middle class families with stagnant incomes.
The problem is that to emphasize a “family” political agenda like this is in effect to accept the conventional wisdom that faster economic growth is unattainable. This is a defeatist attitude which is very harmful to the 20 million Americans who are either unemployed or under-employed. Here, briefly, is what could be done to boost economic growth in the short term:
- Implement broad-based tax reform with lower tax rates for all, paid for by closing loopholes and limiting deductions.
- Reduce regulatory burdens on business by, for example, streamlining (not repealing!) the Affordable Care Act and the Dodd-Frank Financial Reform Act.
- Expand legal immigration with additional high-skill visas as well as an adequate guest worker program.
- Expand international trade with new trade agreements.
These are all political footballs, of course, but also policies with much potential to speed up economic growth. Either we take initiatives such as these or we consign our country to a future of relative economic stagnation with slow wage growth, high unemployment and increasing income inequality.