Economic Growth is Slowing Down: What Shall We Do about It?

 

My last post, “Why Economic Growth is Slowing Down,” reports on the work of the economist Robert Gordon in his book “The Rise and Fall of American Growth.”  Mr. Gordon makes a persuasive argument that the U.S. experienced an unusually strong economic growth spurt from 1870 – 1970 and that we simply cannot expect future GDP growth to replicate such a sustained streak in the future.
Capture0Furthermore, in addition to much slower productivity growth at the present time, we are also facing strong headwinds to growth such as rising inequality, poor educational outcomes, demographic challenges, a huge debt burden and social deterioration at the bottom of the income distribution.
All of this together represents a severe double whammy holding back future economic progress in the U.S.  So what type of public policy response is called for?  Here are what I consider to be Mr. Gordon’s best ideas for simultaneously boosting productivity and combating the headwinds:

  • Toward greater equality of outcomes. Increase the minimum wage (state by state in my opinion), expand the Earned Income Tax Credit to able bodied adults without dependents, reform sentencing to keep more non-violent law breakers out of prison (which makes them unemployable, and therefore poor marriage prospects, upon release).
  • Towards greater equality of opportunity. Provide greater access to preschool education for all children growing up in low-income families. Allow college debt to be repaid as a percentage of taxable income after graduation. Reduce regressive regulatory measures such as occupational licensing.
  • Reducing Demographic Headwinds. Focus immigration reform on raising the average skill level of the working age population. This would include both blue-collar skills and college degrees.

I consider these types of reform to be relatively uncontroversial and therefore more easily doable through the political process. Other policy changes capable of speeding up growth such as broad-based tax reform (lowering tax rates paid for by shrinking deductions), major regulatory reform such as making the Affordable Care Act more flexible and the Dodd/Frank Act less restrictive, and approving the Trans Pacific Partnership to expand trade are all political hot potatoes and therefore will much harder to accomplish.

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