In my last post I discussed the differing views of the U.S. economy held by Federal Reserve Chair Janet Yellen and her rival for the post, Larry Summers:
- Janet Yellen thinks that the U.S. economy is steadily recovering from the Great Recession and that there is no hurry to raise interest rates back to normal levels.
- Larry Summers thinks that the U.S. economy is suffering from secular stagnation and that there is a great need for more fiscal stimulus by the federal government.
There is another point-of-view, perhaps best expressed by the Hoover Institution’s John Cochrane in a recent Wall Street Journal Op Ed. Let me try to summarize Mr. Cochrane’s argument:
- From 1950 – 2000 the U.S. economy grew at an average rate of 3.5% per year. 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 average GDP per person grew from $16,000 to $49,000 during this period.
- The U.S. economy is now overrun by an out-of-control and increasingly politicized regulatory state. America is now middle-aged and overweight. The solution is to eat better and exercise.
- Consider the above chart, the World Bank’s “Distance to Frontier” ease-of-doing-business measure for 2014. The U.S. is near the top but there is plenty of room for improvement.
- Here is what a growth agenda would involve: deep tax reform, cleaning out the insane complexity and cronyism; a thorough overhaul of social programs, getting rid of all the perverse incentives; better schools that come from increased choice and competition; a dramatic legal and regulatory simplification, restoring a transparent rule of law.
- Growth-oriented policies will be resisted. Growth comes from productivity which comes from new disruptive technologies and businesses.
Can our political system deliver the changes that are needed? The rise of Donald Trump and Bernie Sanders show that the people want big changes and are willing to disrupt the status quo to achieve them. This means change is possible but it won’t come easily.