Tag: Economic Growth

Economic Growth Isn’t Everything … But It’s Tremendously Important

 

shutterstock_113872831Economic growth is necessary but not sufficient for a flourishing society. An obvious, non-controversial statement, I would think.

The recent Democratic presidential debate, however, suggests some policymakers have forgotten the “necessary” part as they debate the merits of “democratic socialism” and a more redistributive state. Now more than ever America needs a dynamic, competitive capitalism to drive the US economic engine.

In his latest Washington Post column, AEI’s Michael Strain make fleshes out the above formula. First, growth is necessary:

Income Inequality is Rising Again. What Should We Think About That?

 

063015saez1Is this good news, bad news, or a bit of both? From the Associated Press and CNBC:

Incomes for the bottom 99 percent of American families rose 3.3 percent last year to $47,213, the biggest annual gain in the past 15 years, according to data compiled by economist Emmanuel Saez and released Monday by the Washington Center for Equitable Growth. “For the bottom 99 percent of income earners, this marks the first year of real recovery from the income losses sparked by the Great Recession,” Saez, a professor at the University of California-Berkeley, said in a summary of his findings. … Still, income inequality worsened in 2014. The richest 1 percent of Americans posted a much bigger increase in pay: their incomes soared an average of 10.8 percent to $1.3 million. The wealthiest 1 percent also captured 21.2 percent of all income in 2014, up from 20.1 percent the previous year.

Saez is that other French economist and inequality researcher (though he works with Thomas Piketty, author of Capital in the Twenty-First Century). A few thoughts here:

The World Is Losing Faith in American-Style Capitalism vs. China. But Maybe Not For Long

 

062315chinaFrom Pew:

The U.S. is still regarded as the top economic power, even more so than last year, but most people around the world continue to believe that China either will eventually replace or already has replaced the U.S. as the world’s leading superpower. A median of half across the countries surveyed say that the U.S. is the world’s leading economic power, while only 27% say that of China. While a median of only 14% say China has already replaced the U.S. as the top superpower, majorities or pluralities in 27 of 40 countries say China will eventually become or has already replaced the U.S. as the top superpower.

The economic dynamism generated by democratic capitalism is a key element of the American Project’s persuasive power. But there are other models, such as China’s state-directed capitalism conjoined with an authoritarian state. Years of very fast Chinese growth and relative US stagnation have made China look like the strong horse to many — especially those not-so-interested in democracy. “I have seen the future, and it’s capitalism with Chinese characteristics!” The Beijing Consensus. As the Economist put it back in 2011:

Jeb Is Right About 4 Percent Growth

 

shutterstock_211615246“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.

The April Jobs Report: Is That All There is to This Economic Recovery?

 

050815jobs

So, a decent snapback in the US labor market. Net new jobs increased by 223,000 in April — matching the consensus forecast –while the unemployment rate fell by 0.1 percentage point to 5.4%, according to the Bureau of Labor Statistics. Labor force participation ticked up, making that jobless rate improvement look a bit stronger. The U-6 underemployment rate edged lower. Also, some more progress in the long-term jobless numbers.

Not so decent: The employment rate went nowhere. The March jobs number was revised lower from 126,000 to 85,000. Over the past three months, job gains have averaged 191,000 per month vs. 260,000 monthly in 2014. And, once again, weak wages: The broadest measure of average hourly earnings was up 0.1%, leaving average hourly earnings up 2.2% over the past year. Average hourly earnings for production and non-supervisory workers were up 0.1% and 1.9% year over year. (Double that rate would be nice.) What’s more, the US may still have a 3-6 million “jobs gap.”

The Story of the Most Amazing Economic Chart in Western Civilization

 

043015importantchart

I have referred to the above chart as “The most important economic chart in Western civilization.” How did that amazing growth trajectory happen? As Deirdre McCloskey suggests, the West became a business-admiring civilization and that changed everything. We started respecting and rewarding innovators — and the creative destruction they unleash. But as James Bessen explains in Harvard Business Review, it took awhile for workers to benefit:

Too often, when people think about technology, they only think about the initial invention … Yet most major technologies develop over decades, as large numbers of people learn how to apply, adapt, and improve the initial invention. The initial power loom—one of the transformative technologies of the Industrial Revolution—automated weaving tasks, allowing a weaver to produce twice as much cloth per hour. But over the next century, weavers improved their skills and mechanics and managers made adaptations and improvements, generating a twenty-fold increase in output per hour. Most of the gains from this technology took a long time to realize, and involved the skills and knowledge of many people. …

The Real Lessons of Reaganomics, At Least As I See Them

 

Official_Portrait_of_President_Reagan_1981If you want to promote pro-market policies by citing the success of Reaganomics, don’t do it the wrong way. And the wrong way is suggesting that the Reagan tax cuts paid for themselves. They didn’t (although their deficit impact was smaller than a static analysis shows). And that’s true whether you look at (a) income tax revenue/GDP or (b) real GDP growth to real revenue in the 1970s vs. 1980s, or (c) academic research.

Nor should you suggest the Reagan tax cuts immediately ushered in a period of crazy-go-nuts hypergrowth.They didn’t. Real GDP growth in the 1980s was about the same as the 1970s. Nor was their a pickup in productivity.

But, but, but … the way to judge a huge change in public policy is over the long term. “Making changes to the tax system and regulatory policies of a mammoth economy like the U.S. is like turning the rudder slightly on a supertanker: The initial effects are small, but it leads to a big shift in course over time,” economist Michael Mandel wrote in a fantastic 2004 magazine piece on Reagan’s economic legacy. This is especially true of sweeping tax reform and how changes in tax rates affect “investment in schooling, occupational choice, and business creation and development,” as AEI’s Aparna Mathur, Sita Slavov, and Michael Strain explain in“Should the Top Marginal Income Tax Rate Be 73 Percent?”

King Dollar Naysayer Nonsense

 

Despite the conventional criticisms of the financial commentariat, both theory and evidence argue for a strong, stable, and reliable currency as a crucial channel to prosperity. Just think of the reverse: If you could devalue your way into prosperity, Argentina would be the center of the world economy.

But lately, a loud and growing chorus is blaming the rising U.S. greenback for just about everything. “Multinational profits will suffer.” “Imports and trade deficits will hammer the economy.” “Stocks will fall.” “Recession looms.”

Member Post

 

James Pethokoukis has written another article denouncing marginal tax rate cuts and expressing a preference for child tax credits. James seems to have concluded that strong economic growth is no longer possible, therefore all we can do is throw goodies at the middle class. And that’s how we will beat the Democrats. Preview Open

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Coming Up Next on That 70s Show: Stagflation?

 

shutterstock_167938691Last week, the European Central Bank lowered interest rates — to negative 0.1%. “What,” you may ask, “is a negative interest rate?”

As the New York Times explained before the move,

When a bank pays a 1 percent interest rate, it’s clear what happens: If you deposit your money at the bank, it will pay you a penny each year for every dollar you deposited. When the interest rate is negative, the money goes the other direction.

Is the U.S. Economy About to Do Something It Rarely Does?

 

The US economy just might do something in the second quarter that it hasn’t done too often of late: grow at a 4% or faster annual rate, adjusted for inflation. Economists at Deutsche Bank are looking for 4.2% real GDP growth in the period. And OECD economists aren’t far behind with a 3.9% forecast.

Now it used to be fairly common for the US economy to post a quarter of 4% or faster growth. In the 1980s (1981-1990), there were 18 such quarters. In the 1990s (1991-2000), another 18 quarters. When a big economy like America’s is growing 4% or faster, it’s really cooking. Indeed, those two decades are recalled as ones when the economy snapped out of its 1970s malaise.