Mar 20 2013 -
March Madness is enveloping our college campuses and office cubicles once again. But imagine if, for each two-point basket your team scores, the opponent counters with three. That gap, small at first, would inevitably lead to a significant loss.
When it comes to jobs, America has fallen into a “growth gap” of its own. The current recovery is falling further behind its contemporaries — and many economists now fear our nation has fallen into a new substandard economic norm.
While the recent jobs report contained positive news — 246,000 new private-sector jobs and a slight decline in the unemployment rate — the current recovery led by President Obama actually has fallen further behind other recoveries that have taken place since World War II.
Today’s recovery is half the strength of the average recovery of the past 70 years. The White House likes to boast of 6.4 million private jobs created since the low point of February 2010 — a gain of 5.9 percent. However, over the same period for all previous post-WWII recoveries lasting more than a year, America’s average job gain was 9.8 percent, equivalent to 10.4 million private jobs.
That’s a growth gap of 4.1 million private jobs and $1.3 trillion in real gross domestic product missing from America’s struggling economy. This growth gap, according to blue chip forecasters, is projected to grow larger next year.
Even more troubling, in its most recent Budget and Economic Outlook, the Congressional Budget Office cut its estimate of the potential real GDP growth rate to 2.2 percent, more than a full percentage point below America’s average since 1950. This might not sound like much, but it has a huge impact on jobs, our economy and our ability to pay the future bills of the federal government.
At America’s traditional 3.3 percent economic growth rate of the past half-century, the real economy doubles every 22 years. At the new lower rate of 2.2 percent, it takes almost 32 years to double in size — a decade longer.
A permanent growth gap of 1 percent translates into a slower growth by one-third for young Americans seeking their first job and families hoping to reach their American dream.
A permanent growth gap of 1 percent means our economy will be $20 trillion smaller in 2052. That’s an annual gap larger than our entire economy today.
It will also be harder to balance the federal budget because the 1 percent growth gap means the loss of $93 trillion from our federal coffers through 2052. For perspective, the entire unfunded liability of the U.S. government, including Social Security, Medicare and federal pensions, is less than that — $87 trillion.
This prospect of a “new normal” with permanently slower growth for America’s economy should be a red flag for all Americans.
Washington cannot be content to allow the United States to falter from the ranks of the world’s strongest economies. Together we must focus on reversing this growth gap and creating a second American century in which we remain the world’s most dominant nation for economic freedom, opportunity and prosperity.
To achieve it, the White House must choose another course. Instead of expanding the government as a size of the economy, it should shrink it as witnessed in the pro-growth policies of the Reagan and Clinton administrations.
Those administrations’ economic policies contributed to the two greatest periods of economic growth in American history, separated only by a short, shallow Gulf War recession. At this point in the Reagan recovery, for instance, the economy had grown 20.1 percent and added the equivalent of 7 million more private jobs than the Obama recovery.
To close the growth gap, Congress and the White House should come together in at least four key areas:
First, we must return non-interest federal spending to its historical post-WWII percentage of GDP within the decade to spur business investment and job creation.
Second, we should apply an objective, peer-reviewed cost-benefit analysis to existing regulations as well as expanding it to new ones. Of the 3,500 new federal regulations each year, only 13 are subject to a full analysis as to their economic impact. Better analysis means better regulations, and more jobs.
Third, tax reform should pursue the lowest rates for individuals and businesses while also lowering the cost of capital for new business investment. We must differentiate between loopholes and incentives that universally spur growth — such as accelerated depreciation for job-creating business investment.
Lastly, the president and Congress should act now to make Social Security and Medicare solvent over the long haul.
Follow these steps and America’s growth gap, as well as fear of a dimmer economic future, will disappear.
Brady is the chairman of the Joint Economic Committee.