Slow Economic Growth in 2013

March 14, 2013

Recent economic news has created just a sliver of hope, yet the overall economic picture for 2013 looks bleak. The combination of deficits, regulations and labor trends will create significant obstacles to achieving the economic vibrancy of decades past, says Bruce Yandle, a distinguished adjunct professor of economics with the Mercatus Center at George Mason University.

The Congressional Budget Office (CBO) predicts a 1.7 percent growth in gross domestic product (GDP) in 2013, the World Bank predicts 1.9 percent and Wells Fargo predicts 1.7 percent. This suggests that 2013 will be a rockier year than 2012 but luckily all signs point to a stronger recovery in 2014. However, growth will continue to be suppressed by fiscal policy and macroeconomic conditions.

  • The United States will spend about $388 billion per year servicing $16.4 trillion in debt at current interest levels but this cost would jump to $820 billion per year at 5 percent.
  • GDP growth is being suppressed by bank regulators whose tight grip on lending and ultra-low interest rates has kept a budget crisis from occurring.
  • Even if nominal GDP growth is larger than the CBO's official predictions for 2015 to 2023, GDP growth per year will only average about 1.47 percentage points.

This lackluster growth is hardly enough to offset the gap between government revenues and government spending, which is estimated at 2.72 percent of GDP per year. Improved GDP growth would make America's future fiscal situation easier to manage but the deficit problem must be addressed.

  • Federal regulation, which costs an estimated $1.8 trillion annually, creates another obstacle that hinders growth.
  • Over the past four decades, lawyers and lobbyists have contributed to the incredible growth of the Federal Register, the federal government's publication detailing all proposed federal regulations.
  • While recent employment data shows some improvement in the labor market, President Obama's proposal to raise the minimum wage to $9 per hour would not stimulate the economy but instead punish lower-income workers.

If the economy is to grow, the thicket of rules and regulations must be thinned and government deficits must be reined in.

Source: Bruce Yandle, "The Economic Situation, March 2013," Mercatus Center, March 1, 2013.

 

Browse more articles on Economic Issues