Must America Resign Itself to Much Slower Economic Growth?

The cover story in this week’s Barron’s, by Jonathan Laing, “The Snail Economy, Slowing to a Crawl”, makes a well-documented argument that “over the next 20 years, the U.S. economy is likely to grow only 2% a year.  That’s down from 3% or better since World War II.  Blame it on an aging population and sluggish productivity growth.  Bad news for stocks and social harmony.”
Here’s an example of the argument he makes.  “Mean incomes of minorities in the U.S. population have remained at about 60% of white incomes in recent decades.  Unless that pattern changes, and minorities earn bigger incomes, that augers slower income growth for the overall population as the baby boomers, predominately white, retire over the next 20 years. …At the same time the minority population, particularly Hispanic, will expand. …If income relationships remain the same, U.S. median income growth will drop by an estimated 0.43% a year through 2020 and 0.52% a year over the succeeding decade.”
This demographic trend can be offset to some extent by boosting the ages at which Social Security benefits are received in order to lighten the burden on those who are working.  Immigration policy could be reformed to attract more highly skilled (and therefore more highly paid as well) workers to further offset the growing number of retirees.  “And most of all, the U.S. should engage in a crash educational program to close the gap in skills and income levels among different parts of the American population.”
In addition to the demographic challenge well described by Mr. Laing, there is the problem that growing economic efficiency (caused by advances in technology and ever more globalization) will continue to replace American workers by both machines and lower cost foreign workers.
It is imperative for us to set aside partisan ideology and dramatically confront all of these economic challenges to continued American supremacy on the world stage.  First and foremost we need fundamental tax reform, significantly lowering tax rates for all productive aspects of our economy, especially for investors, risk takers, entrepreneurs and corporations.  (Lower tax rates can be made revenue neutral by eliminating deductions and closing loopholes.)  We should simplify and streamline regulatory processes, again, to give all possible support to the businesses which can make the economy grow faster.
Our status in the world and therefore the future of our country depend on our success in this urgent endeavor!

The Link between Education and Prosperity, Part II: Educare

In my previous post, “The Link between Education and Prosperity”, I looked at data from Paul Peterson and Eric Hanushek which show a very close connection between high school academic achievement and rate of economic growth for various countries around the world.  They point out, for example, that only 32% of U.S. high school students are proficient in mathematics, as compared to 49% in Canada, and that closing this achievement gap would boost our rate of GDP growth by almost 1%.  But they also point out that the math proficiency rate for white students in the U.S. is 42% with much lower proficiency rates for both African American and Hispanic students.  In other words, almost 2/3 of the American-Canadian math proficiency gap can be explained by poor performance of American minority students, many of whom grow up in poverty.
In yesterday’s New York Times, James Heckman, a Nobel prize winner in economics, has an article “Lifelines for Poor Children” which points out the importance of investing in effective early childhood development from birth to age 5.  “High-quality early childhood programs are great economic and social equalizers – they supplement the family lives of disadvantaged children by teaching consistent parenting and by giving children the mentoring, encouragement and support available to functioning middle-class families.”
High quality early childhood education is expensive and it is very important for all levels of government, especially at the federal level, to operate more efficiently.  How is it possible to expand early childhood education under such very tight financial constraints?
The key is to build it into our existing Head Start program on which we are currently spending over $8 billion per year.  Many experts acknowledge that academic gains from Head Start are short lived, seldom persisting even into 3rd grade.  But there are existing models for much more effective early childhood education, such as the program run by Educare in Omaha and other cities.
In short there is a cost effective way to provide “lifelines for poor children”, for their own good and also for the benefit of society as a whole, and we should expect our national leaders to move in this direction.