In my opinion both of the two main presidential candidates have overall poor economic plans. But at least several major Democratic figures such as Hillary Clinton, the NYT columnist Thomas Friedman, and the economist Larry Summers do understand the importance of economic growth.
In particular, says Mr. Summers, “What is unfortunate is that many (progressives), in their eagerness to focus on fairness, neglect the single most important determinant of almost every aspect of economic performance – the rate of growth of total income, as reflected in the gross domestic product.”
More growth means more employment. For each 1 point increase in adult male employment, the employment of young black men rises by 7%.
More growth reduces the need for desperation monetary policies that risk future financial stability.
If U.S. growth continues to have a 2% ceiling, it is doubtful if we will achieve any of our major national objectives. If we can boost growth to 3%, interest rates will normalize, middle-class wages will rise faster than inflation, debt burdens will continue to melt away and the power of the American example will be greatly enhanced.
The question is not whether business success is desirable. The question is how it can be achieved.
All of the above is very positive on the part of Mr. Summers. But then he adds, “What is needed is more demand for the product of business. This is the core of the case for policy approaches to raising public investment and increasing workers’ purchasing power.” In other words Mr. Summers is ignoring that:
Investment in new business structures, equipment and intellectual property has now fallen for three quarters in a row.
Conclusion. The way to achieve the faster rate of growth which Mr. Summers (and almost everyone else) wants is not more public investment but rather more private investment. The House Republicans have a plan to accomplish exactly this.
I have to constantly remind my readers that I am a non-ideological fiscal conservative. I simply want our national leaders to address our two most serious fiscal and economic problems which are:
Massive Debt. Our (public, on which we pay interest) debt is now 75% of GDP, the largest since WWII and steadily getting worse. When interest rates go up, as they surely will before long, interest payments on the debt will increase by hundreds of billions of dollars per year and become a huge drain on the federal budget, eventually leading to a new financial crisis, much worse than the last one.
Slow Economic Growth. The economy has grown at the average rate of only 2.1% since the end of the Great Recession in June 2009. Such slow growth means fewer new jobs for the unemployed and underemployed and smaller raises for all workers.
My last several posts, here and here have pointed out that neither of our two main presidential candidates is adequately addressing these issues. Both of them claim that they want faster growth but their policy proposals will just make our humongous debt even worse. So I was quite surprised by a column in yesterday’s New York Times by Thomas Friedman, “How Clinton could knock Trump out,” trying to “push Clinton to inject some capitalism into her economic plan.” Says Mr. Friedman:
Clinton could be reaching out to center-right (and anti-Trump) Republicans with a real pro-growth, start-up, deregulation, entrepreneurship agenda.
If Clinton wins, she will need to get stuff done, not just give stuff away.
The concerns of the Sanders supporters with fairness and inequality can only be addressed with economic growth; the rising anti-immigration sentiments can be defused only with economic growth; the general anxiety feeding Trumpism can be eased only with economic growth.
Conclusion. I am pleased to hear such sensible thoughts from one of the leading columnists of the NYT. If Clinton wins the election (as I expect) and if the Republicans continue to hold the House of Representatives (as I fervently hope), there could be much common ground for constructing an intelligent agenda going forward.