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Jeb Is Right About 4 Percent Growth
“There is not a reason in the world why we cannot grow at a rate of 4 percent a year.” That’s what Jeb Bush said when he officially announced his presidential run in Miami last week. And right off the bat, most economists trashed the idea.
“It can’t happen and it’s never happened.” “Productivity is too low.” “The labor force is growing too slowly.” “Secular stagnation.”
They don’t call it the gloomy science for nothing.
But wait a minute. We have experienced relatively long periods of 4 percent or more economic growth. Following the Kennedy tax cuts, the economy averaged 5.2 percent yearly growth between 1963 and 1969. After the Reagan tax rates fully went into effect, alongside Paul Volcker’s conquering of inflation, the economy grew at 4.5 percent annually between 1982 and 1989. These were the “seven fat years,” so named by former Wall Street Journal editor Robert Bartley. And between 1994 and 1999, the Bill Clinton/Newt Gingrich economy increased 4.3 percent annually, after welfare reform, NAFTA trade, and cap-gains tax relief.
So we’ve got six-year, seven-year, and five-year periods — all in recent memory — when the American economy beat 4 percent. And for nearly all the post-World War II period, dating from 1947 to 2007 (before the meltdown), the U.S. economy actually grew at 3.4 percent annually. And 3.4 percent is not so far from 4 percent. It’s maybe only a few pro-growth policy changes away. Why wouldn’t we try?
So Jeb Bush’s 4 percent target is both aspirational and doable. It sets an important policy marker for the coming election. The whole GOP should adopt the target. Let the skeptics scoff. Positive solutions are grounds for optimism. And Americans will respond favorably to this kind of optimistic leadership — which is sorely lacking today.
Now, the back story to the Jeb Bush 4 percent target starts in Dallas in 2010 at the George W. Bush Institute. Executive director James Glassman, a former undersecretary of state, was casting about for an economic agenda. And one of his board members, Jeb Bush, tossed out a centerpiece goal of 4 percent growth. It stuck.
Columnist and author Amity Shlaes (author of Coolidge and The Forgotten Man) was brought in by the institute to oversee a book called, naturally, The 4% Solution: Unleashing the Economic Growth America Needs. It was published in 2012.
“That term unleash is very important,” Jim Glassman told me, “because it simply means unleash the economy from government constraints.” Ironically, this past spring, a group of supply-siders — including Art Laffer, Steve Forbes, Steve Moore, and myself — founded the Committee to Unleash Prosperity. (I don’t think we remembered the original book title. Leave it as a coincidence.)
But the key theme here is our desperate need of a new batch of economic-growth policies. For nearly two decades we have grown at 2 percent yearly. That’s unacceptable.
Put supply-side tax reform at the center of a new growth agenda. Start with slashing the corporate tax, which falls most heavily on middle-class wage earners. Go to full cash expensing and a territorial system that would repatriate overseas profits. On the personal side, flatten the rates, broaden the base, and simplify the code. Make sure it pays more after-tax to work, invest, and take risks. Instead of raising taxes on capital, reduce or abolish investment taxes (which would contribute to a rebound in the soft productivity numbers).
But tax reform is not enough. We need pro-growth immigration reform to boost the lagging growth of the labor force. We need entitlement reform for welfare, food stamps, and disability, so that instead of paying people not to work, we incentivize people to rejoin the labor force.
Trade tariff reduction, now front and center in Washington, would also be important to a pro-growth agenda. Tariff cuts are tax cuts. They make businesses more competitive and provide more export markets. Meanwhile, consumers get the best-quality goods at the lowest prices anywhere.
Improving education with choice, charters, and vouchers is another much-needed pro-growth reform. So is ending Obamacare and replacing it with a privately driven, free-choice health-care system.
Finally, a better, more consistent, and more transparent monetary policy from the Fed that creates a reliable dollar would be a huge pro-growth reform.
Is 4 percent growth really possible? Sure it is. And it would help solve a lot of problems, including poverty, middle-class take-home pay, jobs, budget deficits, and on and on.
I’m not endorsing Mr. Bush at this point. But I am endorsing his 4 percent solution. If decisive policies can unleash innovation and entrepreneurship, get the economy out from under the government’s shackles, and provide a spirit of optimism, then all things are possible.
The whole history of America tells me so. Don’t tell me it can’t be done.
Published in Economics
It’s time we got past supply side economics. Supply side is just an observation about elasticities, it’s not macro economics, (is macroeconomics, economics?) The cuts from confiscatory and economic and cultural distorting rates caused a robust response, but cutting corporate profits taxes from 35% to 25% won’t. The tax code must be tossed because it is rotten and riddled with special interest favors. Tossing the regulatory regime is equally important because it is destructive and also riddled with competition and entrepreneurial destroying special deals and deadening bureaucratic stupidity. We count government spending as part of out put, although even the necessary part is overhead and at the margin all comes from either imports or is extracted from the private sector. How many able-bodied people are not in the work force because they choose not to be and are paid for their decision. How many people are engaged in illegal activity, trying to stop this illegal activity or are in jail because of it. Yes we could grow at 5 or 6 percent for quite a few years if we undid really stupid policies and incentives. But growth isn’t the most important measure. The most important things are difficult to measure, like human flourishing which is only partially captured by income and measures such as people getting off welfare, out of jail, growing entrepreneurial activity, inner city transformations that can be seen but are hard to measure.
How is “…pro-growth immigration reform.[going] to boost the lagging growth of the labor force.” ?
From nail salons to yard services to tech workers immigration is displacing Americans. How about putting them back to work (and quit displacing them while requiring them to train their H-1B visa replacements) first?
I’m for whatever candidate is for 4.1 % growth instead of 4%. Aim high!
Tax reform, entitlement reform, cut regulations. No kidding. And no Republican has been able to pull that off in the last 100 years. The only question that matters is how Jeb proposes to actually make that stuff happen.
When our founders pledged to one another their lives, fortunes, and sacred honor, they did it for 4% growth.
Cutting the corporate tax rate from the highest levels in the OECD to at least match Canada, our largest trading partners would sure as hell help – and it’s not “corporate profit taxes”, it’s just taxes. There are no taxes on profits, profit is what’s left after taxes are paid. There’s a reason why Germany is looked upon as the cash resource in the EU and France is not.
It will certainly make US corporate products more competitive, and will increase the likelihood of corporate expansion, not contraction, which leads to jobs.
Frankly I’d eliminate the corporate profits tax, or rather treat profits as the income of the holder of record and tax it at holders’ marginal rates which shouldn’t be higher than 15%. Our problems go beyond a little supply side stimulus. That’s my point.
The WSJ commented on the 4% target in this article. They think it’s a tough goal.
http://blogs.wsj.com/economics/2015/06/15/what-ever-happened-to-4-growth-and-could-jeb-bush-bring-it-back/
I believe it is indeed possible. All that is required is undoing most of the “progress” progressives have accomplished. The whining resulting from any attempt to accomplish any of the necessary reforms would be deafening. The New York Times would be apoplectic; that, in itself, would represent strong evidence it is the right medicine.
It is interesting: there is great concerns, even great anguish, about job-killing robots…but the productivity statistics do not show any tremendous jumps in recent years. Looks more like the continuation of long-term trends than any sharp upward break:
LINK
Some growth can be allowed to occur with regulatory and tax reform. Not sure about 4%. But most importantly, growing the labor force through immigration doesn’t make sense when unemployment is high and wages are stagnant.
I think more growth is certainly possible, but I disagree that immigration should be part of that growth strategy right now.
Thanks – that clarification helped me understand your point. It is not just one thing, it’s everything – and as I see it, anything that keeps money out of the gov’ts hands makes dollars go much farther than if they are sieved through the federal maw.
Unemployment is high only in a relative sense, if you look at the U6 data. It’s the workforce participation rate that’s lower that is keeping the U3/published rate lower.
It actually *does* make sense for legal immigration to continue, because there are a lot of jobs in entry-level/service sector gigs that go unfilled, for lots of reasons. One being there’s a bigger and longer safety hammock (it’s not a net anymore, you can lounge in this thing).
Immigration itself isn’t a problem. Illegal immigration is, because those people are less likely to participate in the legitimate economy (meaning they’re more likely to be paid under the table), and more likely to consume gov’t benefits/entitlements in one form or another.
I don’t like thinking of immigration as an economic strategy, though. I’d much rather the gov’t keeps its hands of the wheels of the markets, for labor and everything else, as evidenced by its repeated pile of catastrophes it keeps amassing for our own good.
4% growth is a goal, not a plan
Never understood why the GOP thinks esoteric rhetoric about GDP growth has any political value.
Growth, schmowth. It don’t count for nothing unless we stop the abuses of power by the corrupt, regulatory system.
Doesn’t happen without stopping the abuses of the regulatory system. Kudlow and Bush both say this.
Maybe they should say it in public and let other people in on it.
It’s possible that they have and I’ve missed it, but I’ve been watching for such things to be said and haven’t heard them speak up yet.
In late May 2015, Larry advocated 5% growth, now Jeb says it’s gonna be 4% growth and he’s fine with that apparently. Larry sells out a whopping 1% growth (trillions of dollars) in less than a month.
I’d be happy with 2% growth, and a 5% reduction of imported workers and peasants.
“GDP grew at an annual rate of just 1.7 percent in the six quarters before the 2003 [Bush] tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1 percent”. It ain’t brain surgery.
That’s fine, but you will pay more for everything. The low skilled immigrants have kept inflation down.
How many 4% years did we have since the tax cuts? One, just one.
So that’s an argument not to cut taxes? Or that you can’t have 4% growth? Because it looks like both of those things happened.
Pretty lame point if you ask me.
Inflation or all the things I as a member of the middle class, don’t use. I cut my own grass and make my own bed and clean my house (wife mostly, as she will tell you). There are other kinds of inflation too that affect most of us. Traffic inflation, crime inflation, waiting in line inflation, the inflation of communication when ESL is more like ETL (third) I could go on….
It is almost always a good idea to cut taxes. But there are other factors now at play. I agree with this WSJ analysis which says in a nutshell: demographics are bad and it will take a huge effort to reach 4%, if at all feasible. I respect Larry Kudlow greatly but something has changed. We can take measures to mitigate that something, but it is a tough battle, tougher than in the past.
Well ok, but millions of other Americans are using them directly or indirectly. The benefits of low inflation have accrued to everyone through low interest rates, low mortgages etc. So even if a person did not employ an illegal immigrant, that person still benefited from low interest rates.
This is about Larry being in the tank for Jeb. The magic # of 4% is a political ad for Bush dressed up as economic policy. We are to believe that only Jeb could conceive of this aspirational goal. I’m not arguing against the 4% solution. I’m challenging the motive behind it. Kudlow is an card carrying member of the pro Bush, open border Republican establishment. He is entitled to be; just stop pretending to be uncommitted.