How Ambitious is Pawlenty’s Growth Goal?
Plenty.
In his economic speech on Tuesday, presidential candidate Tim Pawlenty set out an ambitious goal for economic growth:
Let’s grow the economy by 5%, instead of the anemic 2% currently envisioned. Such a national economic growth target will set our sights on a positive future. And inspire the actions needed to reach it. By the way, 5% growth is not some pie-in-the-sky number. We’ve done it before. And with the right policies, we can do it again.
Between 1983 and 1987, the Reagan recovery grew at 4.9%. Between 1996 and 1999, under President Bill Clinton and a Republican Congress the economy grew at more than 4.7%. In each case millions of new jobs were created, incomes rose and unemployment fell to historic lows. The same can happen again.
In the aftermath of the Great Recession, it wouldn’t be surprising to see a couple years of strong growth at some point. Let’s hope it’s soon.
But could we have remarkably strong growth for a full decade, as Pawlenty hopes? His two examples don’t inspire confidence. In each case, strong growth ended in four years or less.
So when was the last time the United States grew at 5% for a full decade?
Mid-1958 through Mid-1968. Over that span, U.S. growth averaged exactly 5.0% per year.
But that’s the only instance since World War II. Economic growth was lower than 5%, usually much lower, in every other decade since 1947:
Growth hasn’t reached even 4% over any decade since the late 60s and early 70s.
Getting up to 5% over the next decade thus seems not merely ambitious, but almost unthinkable.
Of course, a few years back many would have said the same thing about getting the U.S. growth rate down to 2%. Until the Great Recession, there was only one ten-year stretch in the post-war period, ending in early 1983, in which growth averaged as low as 2%.
Sadly, we’ve broken that record handily. Over the past ten years, growth has averaged a meager 1.8%.
So maybe T-Paw’s right, and the economy can break out to the upside just as we’ve done to the down.
But I wouldn’t bet on it, regardless of who is president.
P.S. The quarterly data I use here are available since 1947. Annual data go back to 1929. Perhaps not surprisingly, every ten-year period ending in 1941 through 1951 had an average growth rate of 5% or more, thanks to World War II and the rebound from the Great Depression.
Pawlenty’s tax cut plan is ridiculous. Cutting taxes without solving the long-term budget gap will not increase growth. It might even reduce growth, since it would increase uncertainty as to how and when the fiscal gap will be closed.
What has a small chance of igniting growth is a major fiscal course correction. It is likely to involve higher taxes. Its foundational element is complete and convincing repudiation of all government benefit promises to the non-poor. That one step would close the fiscal gap and provide a foundation for solvent government finance. It would be terribly disruptive, but much less so than a government bond market crash, which is the only true alternative.
The sooner we get the fiscal restructuring (aka bankruptcy from impossible promises) behind us, the faster we can resume economic growth.
It takes taxes to spur growth. Until the tax cuts are allowed to expire, the wealthy will hold too much money or spend it on junk investments for higher yields. Tax it and they don’t – instead it is spent and the economy grows. Of course, growth is just buying more – it may not translate into more well being. Distribution has something to do with it as well, which is why the Clinton years were better then the Bush years, but not as good as other times before tax rates were cut so deeply on the wealthy.
If you are going to take fools like Pawlenty seriously it only encourages them. There is nothing of substance here.
As we now know from the Ryan proposal on the ecnomy and Medicare, there is no intellectual structure to the things Conservative Republicans are putting forth. These are expected results by fiat, and the results are presented as confirmed facts. The media of course has very little questions for this type of anlaysis for fear of being charged as biased. As though confronting lies and misrepresentations is biased.
ah yes, I am.
Am I misreading your chart? It looks like growth from 1957-1968 didn’t come close to averaging 5% per year — more like 4%.
Hi Scarpy – The chart shows the average growth rate over the preceding 40 quarters, aka 10 years. So that little spike up to 5.0% in mid-1968 means that growth average 5.0% on the nose in the decade up to that point.