“In the years of growth that certainly lie ahead, I have no doubt that America can both deliver riches to many and a decent life for all. We must not settle for less.” Warren Buffett, Time Magazine, January 15, 2018
As the readers of this blog know well, the two main topics I discuss are: 1) our massive debt, now 77% of GDP (for the public part on which we pay interest), the highest it has been since WWII, and predicted by CBO to get much worse without major changes in current policy, and 2) slow economic growth, averaging just 2% of GDP annually ever since the end of the Great Recession in June 2009. Naturally I am always interested to relate the views of others to my own.
In the current issue of Time, Mr. Buffett makes the simple argument that, with .8% growth in population each year (births minus deaths plus immigration), 2% GDP growth overall leads to 1.2% annual growth of GDP per capita. This means that in just 25 years, or one generation, our current $59,000 GDP per capita will increase to $79,000 GDP per capita. This is very impressive. The problem, of course, is that the average GDP per capita is not evenly distributed.
Here are the two most common political reactions:
- Democratic. 2% growth is creating plenty of GDP per capita. It just needs to be distributed more evenly by raising taxes on the wealthy and spending it on more generous welfare programs for the less fortunate.
- Republican. We can do better than 2% annual growth. If growth could be increased to 3% per year or maybe even just 2.5%, then the labor market will stay tight and produce more jobs and better paying jobs. Everyone will prosper, not just the well-off.
Conclusion. I greatly admire Warren Buffett. He is right about many things. But I think we can do better than 2% annual growth.