My last three posts, here, here, and here address America’s slow economic growth for the past 15 years and why it is such a serious problem. Today I begin to discuss how we can turn this around.
In today’s Wall Street Journal, the economist John Cochrane has a very informative Op Ed, “Ending America’s Slow-Growth Tailspin” which describes a clear path to speed up economic growth. Says Mr. Cochrane:
- From 1950 – 2000 the U.S. economy grew at an average rate of 3.5% annually. Since 2000 it has grown at only half this rate, 1.76% annually. By 2008 the average American was more than three times better off than in 1952. Real GDP per person grew from $16,000 to $49,000 during this time period.
- There are three main theories as to why growth is slowing down.
- We’ve run out of new ideas. Get used to it and start fighting over the shrinking pie.
- The culprit is “secular stagnation” which the Federal Reserve is unsuccessfully trying to overcome with low interest rates and quantitative easing. The only other solution is vast new stimulus spending.
- The U.S. economy is overrun by an out-of-control and increasingly politicized regulatory state. America is middle-aged and overweight. The solution is to eat better and exercise.
- The first two camps are doubtful that better policies will produce faster growth. But the examples of North Korea vs South Korea and East Germany vs West Germany show that government policy matters for economic growth. In fact Mr. Cochrane’s chart (above) shows how a country’s “ease of doing business” score, compiled by the World Bank, correlates with increased average income. Even though the U.S. is near the top by this measure, there is still plenty of room for improvement.
In my next post I will delineate specifically how to streamline our oversized regulatory state. In the meantime, take a look at Mr. Cochrane’s article in today’s WSJ.