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May 4, 2016

The Social and Political Cost of Slow Economic Growth

 

The Commerce Department reports that 1st quarter 2016 economic growth was a lousy 0.5 percent, which was even worse than the 1.4 percent of the 4th quarter of 2015.

With only three quarters left in his term, it’s now virtually assured that Barack Obama will be the only US president in history to never deliver a single year with 3 percent economic growth. The likelihood is that economic growth during the Obama years will have averaged around 1.55 percent. Engineer and entrepreneur Louis Woodhill finds that only Andrew Johnson, Herbert Hoover and Theodore Roosevelt had worse records for economic growth.

For comparison purposes, the George W. Bush administration averaged 2.10 percent economic growth, with two years above 3 percent. Ronald Reagan averaged 3.5 percent over his eight years, even including the 1982 recession. After the 1982 recession, the Reagan economy averaged a whopping 4.9 percent.

Woodhill further reports that, from 1790 through 2000, US economic growth averaged 3.79 percent. By contrast, 2015 is the 10th year in a row with sub-3 percent economic growth.

Prolonged periods of slow economic growth have a human cost. When economic growth is subpar, workers don’t get pay increases and even lose their jobs. In a growing economy, people who lose their jobs are generally able to find equivalent or even superior employment, redeploying their labor in more productive areas. But that doesn’t happen when economic growth is subpar.

It’s no wonder voters are angry. But their anger is somewhat misplaced.

A lot of anger is directed at trade and immigration, with the accusation that free trade and immigration are “killing American jobs.” But the problem isn’t the minor dislocation caused by trade and immigration. The real problem is that those dislocated don’t have new, better job options. In a growing economy, they would. The problem isn’t trade or immigration, the problem is slow economic growth.

Similarly, demands for higher minimum wages are also a symptom of slow economic growth. In a growing economy, minimum wage jobs are temporary stops for workers as they climb the economic ladder. The problem isn’t the minimum wage; the problem is slow economic growth.

Our elected officials have largely ignored the problem of slow economic growth, or they’ve wasted time and money on the wrong solutions, like big-government spending programs. They’ve sown the wind, and now they are reaping the whirlwind. The American people are blaming other countries and other people for a slow-growth wound that is self-inflicted. And if federal policymakers don’t prioritize stimulating real, long-term economic growth, it is only going to get worse.


 

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