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The 4% Solution
I was at a dinner at the Harvard Club in New York City the other night for an interesting new book from the Bush Institute. The dinner host was Amity Shlaes, and the book is called “The 4% Solution: Unleashing the Economic Growth America Needs.” The gist of the argument is this: that with 4 percent annual GDP growth we can solve a great many problems bedeviling our society, and that 4 percent is eminently achievable. (The average since the end of World War II is somewhere near 3 percent).
Here’s how the New York Times describes the book:
For the first time since leaving office three and a half years ago, Mr. Bush is advancing a variety of ideas about how to jump-start economic growth by restructuring taxes, expanding trade, encouraging innovation, fixing immigration and overhauling Social Security. He wrote the foreword for the book, a collection of essays from an array of economists, including five Nobel Prize winners, and he proposes a national goal of expanding the economy by 4 percent a year on a sustained basis.
Some very interesting essays here (and they are short, so they don’t bog down). Also interesting in light of today’s news that, in the 2nd quarter of this year, the economy’s growth slowed to a rate of just 1.5%. The argument here is that America would be better served if we shifted the debate to growth (Note: Governor Romney) instead of all the chatter about “creating jobs.”
I’m about half-way through. Anyone out there read it yet?
A lot of people, some very good people, are on the 4%+ GDP growth bandwagon.
There is no example of a nation growing consistently (more than 1 quarter) with Debt:GDP >90%, we are at 103% and (hopefully) when Gov. Romney takes the oath in January we will be approaching 110%.
We will be $16T in debt with just over a quarter of that due during the next president’s first term. If GDP could grow that fast it will drive short term rates up, not a bad thing for the growth, but horrible when we have to refinance a 1/4 or more of our national debt at much higher rates. The interest impact alone on the deficit will crush any positive uptick in GDP.
Can the fed suppress short term rates with accelerating GDP? For a very short time before hyper inflation becomes an issue.
Past 90% Debt:GDP the cause effect becomes circular and self defeating/reinforcing.
This ends badly.
I’m about half-way through. Anyone out there read it yet?
No. But I’ll get it if you recommend it. I read one of Shlaes’ books [The Greedy Hand] a few years back on a recommendation and found it to be rather good.
Sustained 4% growth is absolute pie-in-the-sky. The low-hanging fruit has been picked.
Edited 7 minutes ago
I wonder if a little digging might turn up any number of economists who went on record in the 1970s saying something similar.
Government spending at all levels now accounts for about 40% of spending add to that the debt burden and regulation burden and the cost of terrorism and 1.5% growth is high. If the Fed were not shoveling money out the door there would be contraction.
If your going to dream why not 8% growth?
It seems Bozo failed to keep the country safe, increased spending, regulation, and debt while he was in office and now he is pitching ideas for recovery? Who would waste their time reading anything recommended by a dismal failure?
Edited 7 minutes ago
I wonder if a little digging might turn up any number of economists who went on record in the 1970s saying something similar. ·25 minutes ago
During the 70’s the Debt:GDP Ratio was highest in 1970 at 37% and lowest in 1979 at 32% with an averge of 34%. The Federal Reserve discount rate averaged 7.1% (13.8% max, 3.3% minimum).
At the end of the 70’s there was time/room for the economy to become growth oriented with lower rates. Compare/contrast to now: Fed Funds rate is financially repressed to near 0. and our Debt:GDP ratio is triple what it was then.
We are out of time/room. There is a weak inverse correlation (I acknowledge causality is a 2 way street, but the relationship is irrefutable) between the increase in National Debt and the decrease in GDP Growth rate.
I am confident there were folks in the 70’s saying something similar, the math doesn’t work now.
During the 70’s the Debt:GDP Ratio was highest in 1970 at 37% and lowest in 1979 at 32% with an averge of 34%. The Federal Reserve discount rate averaged 7.1% (13.8% max, 3.3% minimum).
At the end of the 70’s there was time/room for the economy to become growth oriented with lower rates. Compare/contrast to now: Fed Funds rate is financially repressed to near 0. and our Debt:GDP ratio is triple what it was then.
We are out of time/room. There is a weak inverse correlation (I acknowledge causality is a 2 way street, but the relationship is irrefutable) between the increase in National Debt and the decrease in GDP Growth rate.
I am confident there were folks in the 70’s saying something similar, the math doesn’t work now. ·34 minutes ago
Thanks for filling in the details of your argument. I understand your point much better now.
You were gunning for provocative here, weren’t you?
BrentB67, gently, may I say I would read the book before I dismissed people such as Gary Becker so lightly. I’m betting you would be like it.
You were gunning for provocative here, weren’t you? ·24 minutes ago
No. I am an incurable American optimist. I believe we can overcome any problem, but first we have to admit we have a problem – a big one. I think that light, relatively painless solutions like Congressman Ryan’s budget or this book distract from the size of the problem.
Once we admit the size and scope of the problem and face up to the fact the source of the problem is in the mirror I absolutely believe we will make the hard choices, come together as a nation and solve this before we destroy our grandchildren’s prosperity.
Mr. McGurn I am not attacking any of the authors individually. There are some very qualified authors included therein especially Mr. Becker. The Bush Institute has at best little credibility on the matter and at worst is highly hypocritical. Achieving a 4% growth rate for multiple periods at our debt levels is mathematically near impossible.
About the last thing Romney needed: Dubya pushing an economic policy manifesto.
Edited 7 minutes ago
During the 70’s the Debt:GDP Ratio was highest in 1970 at 37% and lowest in 1979 at 32% with an averge of 34%. The Federal Reserve discount rate averaged 7.1% (13.8% max, 3.3% minimum).
At the end of the 70’s there was time/room for the economy to become growth oriented with lower rates. Compare/contrast to now: Fed Funds rate is financially repressed to near 0. and our Debt:GDP ratio is triple what it was then.
We are out of time/room. There is a weak inverse correlation (I acknowledge causality is a 2 way street, but the relationship is irrefutable) between the increase in National Debt and the decrease in GDP Growth rate.
I am confident there were folks in the 70’s saying something similar, the math doesn’t work now. ·1 hour ago
Thanks! Now I’m going to have to drink double during happy hour to cheer up!!
There are ways out of this mess, but the first step in the process is ackowledging the problem. A cute book of short stories built on the foundation of an economic failed presidential administration isn’t that step.
I am thinking about getting the book. I have been more interested in getting the backgrounds of the philosophy of conservatism down; but now it is time for me to start reading about specific policy proposals in depth.
Did Ms. Shlaes mention the biography of Collidge she was working on? I had it in my wishlist on Amazon forever and then it mysteriously disappeared…