Memo To Governor Pawlenty: Check That Math On Growth
In round one of the Republican debates on Monday night, former Minnesota governor Tim Pawlenty offered an aggressive tax plan that he said would pay off with a decade long burst of growth:
"We put out an aspiration goal of 5 percent," he said. "Is that easy? No. Is it a stretch goal? Yes. But the numbers, whether it's that number or something a little less, still work."Five percent for 10 years! I don't expect much in the way of care and accuracy from political debates, no matter what the speaker's affiliation, but I can't let this one float by. The U.S. economy can surely grow faster than it has lately, but numbers like this, and the candidates who toss them off, have no place in a serious debate.
This graph shows the historical record.
Click to enlarge
There were plenty of five percent years in the 1930s and 1940s, but that was depression or wartime -- when the economy was being stimulated by government spending. Growth at that torrid pace has been pretty unusual lately -- one year in the 1980s, four years in the 1970s, and four years in the 1960s, and most were tied to a recovery. We got close to that sort of growth in 1997, 1998 and 1999, though. Of the last decade our best real growth year was 3.6 percent.
Real economic growth, in a steady state, arises from two factors. One is growth in the population; the other is productivity. Lately the population has been growing at about one percent per year. I don't recall anyone saying we should open the golden door to millions of immigrants, so I guess the growth burden has to fall to productivity -- investment in businesses.
Cyclical above-average growth, that comes after recessions, gets a push from government, through fiscal policy (World War II, Korean War, Vietnam War) or monetary policy (lower interest rates to stimulate housing, and other cyclical businesses, for the most part). That goes against Pawlenty's "shrink government" principles:
On jobs, Pawlenty told The Fiscal Times: "The best thing we can do to grow jobs in this country is to shrink government because the people who want to start business or grow businesses and add jobs are telling us that the government's load is too heavy and you are discouraging us," he said. "We have to have an America where people are saying, 'I want to start a business.'"And under his plan, government would have to shrink, because Governor Pawlenty wants to cut tax rates way back -- for corporations to 15 percent from 35 percent today, and for individuals to a maximum of 25 percent from 35 today.
But none of these proposals can ever happen, for the same reason that the U.S. economy is so unlikely to grow for 10 years at five percent. The system is too big and complicated to change anything that drastically. Our economy is a complicated instrument, and what we need today is not slogans and catchy proposals that aren't thought through, such as Governor Pawlenty's, but rather serious fact-based long-term plans that cut the size of government in a rational way.
Congress -- hurry slowly.
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