Is Four Percent Economic Growth Out of the Question?
June 24, 2015
Economic growth in real terms is averaging a meager 2.2 percent annual rate in the 23 quarters since the recession's trough in June 2009. The consensus forecast of about 1 percent growth for the first half of this year offers little solace.
A clarion call for faster economic growth - even four percent, as presidential candidate Jeb Bush recently said - is a worthy and viable aspiration. The economy has achieved it before. The average growth rate was four percent or higher 17 times in the rolling four-year periods since 1950. It can reach that goal again.
The recession was officially over in mid-2009, and toward the end of that year the economy showed signs of recovery. A massive fiscal spending stimulus had been signed into law. The Federal Reserve was embarking on an unprecedented monetary accommodation. Leading economists and forecasters predicted the economy would respond to this policy elixir with a great surge in performance but growth has been about one-half of the Fed's projections.
The economy can grow at significantly higher rates than the prevailing pessimism.
- What is needed for more rapid growth is a long-term commitment to policies that significantly increase U.S. economic potential.
- Short-term policies such as temporary tax and spending changes that have characterized recent years should be set aside in favor of longer-term tax reform and removal of other barriers to economic growth.
This means policies that bring more people into the workforce. It means encouraging real capital investment to drive higher levels of productivity growth. It means resetting long-run expectations of potential for every individual, household and business.
Source: Glenn Hubbard and Kevin Warsh, "How the U.S. Can Return to 4% Growth," Wall Street Journal, June 21, 2015.
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