The U.S. economy has grown at the rate of only 2.2% since the end of the Great Recession in June 2009. This is much slower than the average rate of growth of 3% for the past fifty years.
The economists Glenn Hubbard and Kevin Warsh, writing in the Wall Street Journal, “How the U.S. Can Return to 4% Growth,” point out that:
- After the severe recession of 1973-1975, the economy grew at a 3.6% annual real rate during the 23 quarters that followed.
- After the deep recession of 1981-1982, real GDP growth averaged 4.8% in the next 23 quarters.
- Recent research has shown that steep recoveries typically follow financial crises.
The economist John Taylor, also writing in the WSJ, “A Recovery Waiting to Be Liberated,” explains that the growth of the economy, i.e. growth of GDP, equals employment growth plus productivity growth. He then points out that:
- Population is growing about 1% per year. However the labor-force participation rate has fallen every year of the recovery, from 66% in 2008 to 62.9% in 2014. Even turning this around slightly would increase employment growth above the 1% figure coming from population growth alone.
- Although productivity growth has hovered around 1% for the past five years, this is less than half of the 2.5% average over the past 20 years.
Given the strong headwinds of globalization and ever new technology affecting the U.S. economy, we especially need new policies such as:
- Fundamental tax reform directed at increasing the incentives for work and driving investment in productive assets.
- Regulatory reform that balances economic benefits and costs (e.g. lightening the burdens of Obamacare and Dodd-Frank).
- Trade agreements to break down barriers to open global markets.
- Education policies to prepare all young people for productive careers.
In other words, rather than accepting our current situation as “the new normal” or as unalterable “secular stagnation,” we need to “give growth a chance”!