Schemes to speed up U.S. economic growth to 5 percent yearly are almost as common as insults on the 2016 presidential campaign trail. But in light of deep-rooted problems, a cold-eyed analysis shows that such goals are implausible for now.
With gross domestic product inching forward at an anemic 2 percent annual pace, a sure vote-getter is promising to restore growth levels to those enjoyed during halcyon times of yore. On the GOP side, front-runner Donald Trump (growth goal: 5 to 6 percent) and Texas Sen. Ted Cruz (5 percent) call for tax reductions to uncork bottled-up energy and return the U.S. to the glory days.
Among the Democrats, Vermont Sen. Bernard Sanders (5.3 percent) wants to supercharge growth through expanding federal spending on infrastructure and enlarging government programs, such as extending Medicare to all Americans. Hillary Clinton, ahead in the party's delegate count, has a less ambitious plan for federal remedies and hasn't pinpointed a growth target.
With the candidate field narrowing, and Trump and Clinton solidifying their leads after the Super Tuesday sweepstakes, the stakes are mounting. The economic issue is sure to be important in the Thursday night Republican debate and the Democrats' face-off on Saturday.
No wonder economic panaceas are prevalent. Cruz, for example, calls for imposing a flat tax of 10 percent, scrapping the current seven rates that go as high as 39.6 percent and slashing government regulations that he believes impede growth. "Tax reform is a powerful lever for restoring economic expansion," he said.
He typifies the yearning for the prosperous past by invoking the solid growth rates under tax-cutter Ronald Reagan. And for good measure, he throws in praise for the country's economic performance under Democrat John F. Kennedy, who also lowered taxes.
But the nonpartisan Committee for a Responsible Budget, for one, casts a skeptical eye on claims that the golden days glittered as much as advertised, regardless of government actions. Since 1947, the group notes, the average annual growth rate has been 3.2 percent. And despite the postwar boom and the 1990s tech explosion, the prosperity never maintained a straight upward trajectory.
One reason is the annoying recurrence of recessions, which since World War II have come along every five to 10 years or so -- there were 11 of them stretching from 1948-49 to 2007-09. Reagan's eight years in office were mostly robust, but a nasty 1981-82 downturn stands out like a bruise. Using World Bank growth figures, the average yearly Reagan record was 3.5 percent. The Bill Clinton years, which were free of a recession, did just slightly better, at 3.8 percent.
The more important point: It's doubtful that government policies can singlehandedly supercharge an economy as vast and varied as that of the U.S. Look at Washington's pump-priming moves since the Great Recession. First came President Barack Obama's $830 billion stimulus, and then the Federal Reserve injected $3.5 trillion into the economy. The outcome was a minimal payoff in GDP growth.
The Congressional Budget Office believes that repealing Obamacare, which the Republicans condemn as a job-killing economic drag, would boost growth by less than 0.1 percent annually. Overhauling the tax code, according to the congressional Joint Committee on Taxation and the U.S. Treasury Dept., would add a mere 0.5 percent or less.
Projections going forward aren't the stuff of dreams. The CBO estimates that inflation-adjusted growth will average 2.1 percent over the next decade. The current era's sluggish tempo has tempered a lot of optimists' expectations.
For instance, Joseph LaVorgna, chief U.S. economist at Deutsche Bank, once forecast growth of more than 3 percent in 2014 and 2015, which turned out to be disappointments. The impotence of lower gasoline prices on consumer spending and revised economic numbers have put him in the 2 percent camp for 2016.
And the trend is not encouraging. "The last time we had growth over 3 percent was in 2005," he said. "After 11 years, why should that" reverse anytime soon?
Many factors go into the current slow-growth economy. For one, increased globalization has driven numerous manufacturing jobs to cheaper nations, harming the American middle class. What's more, the massive baby boomer generation is starting to retire. Their exit from the labor market removes experienced employees from the workforce and increases the strain on government programs like Social Security, which could lead to a higher tax burden for younger people.
Also to blame: the after-shocks from the recession, which have made many companies risk-averse, leading to tepid capital spending. These outlays are the lifeblood of innovation and productivity.
But productivity began decelerating in the middle of the last decade, before the recession hit. And this condition has persisted in spite of all the technological wonders of recent years, from the iPhone to Airbnb.
Why? At a Brookings Institute forum last year, economists Barry Bosworth and Martin Neil Baily suggested that, as in earlier eras, the economy has yet to figure out how to take full advantage of new technology -- meaning we are in one of those fallow periods.
If that is true, then bounteous times will return eventually. Just not soon, no matter who is president.