Latest estimate confirms slow growth — and need for policy change

Raymond Keating
Raymond Keating

Can we stop messing around and finally get serious about this economy?

At the very least, the United States has suffered a lost nine years. More accurately, we’ve basically suffered a lost decade and a half with only a couple of years of solid growth over that period.

The U.S. Bureau of Economic Analysis recently released its second estimate of third quarter gross domestic product, the broad measure of goods and services produced in the country. Real GDP growth for the third quarter was revised upward from 1.5 percent to 2.1 percent. Excited? Don’t be.

In fact, a few key measures within GDP were actually downgraded, with real export growth moving down from an original estimate of 1.8 percent to 0.9 percent. The decline in nonresidential structures investment went from a negative
4 percent to a negative 7.1 percent. Intellectual property investment moved from growth of 1.8 percent to a decline of 0.8 percent. One bright spot was an increase in the estimate of equipment investment growth from 5.3 percent to 9.5 percent.

Through the first three quarters of this year, real GDP growth has averaged 2.2 percent. During this recovery, growth also has averaged 2.2 percent. That’s half of where growth should be during a recovery.

The story of this sluggish economy goes back farther. Since the beginning of 2007, real growth has averaged a woeful 1.3 percent. And if we reach back to the start of 2001, growth has averaged only 1.8 percent.

In contrast, real annual growth averaged 3.8 percent from 1950 to 2000 and 3.3 percent from 1950 to this last quarter.

Is the U.S. simply doomed to be a slow growth economy, as many
so-called experts seem to be saying? Of course not. We’ve heard these types of naysayers before, such as in the late 1970s and early 1980s, when experts proclaimed stagflation would be the norm. It wasn’t. Why? Because policymaking changed dramatically.

No one should be surprised that government expansion, interference and intervention only made matters worse when government was the cause of the 2008 credit and economic woes in the first place.

If we want strong growth to resume, then elected officials need to get serious about dramatically changing course. That means tax reform and substantive, permanent tax relief. It also does not mean just stopping the federal regulatory machine, but rolling back regulations that impose enormous costs and uncertainty. That does not mean the Federal Reserve should just raise the federal funds rate by a quarter point, but instead get back to focusing exclusively on maintaining price stability and stop trying to manipulate the economy. And it means becoming the world leader on pushing ahead with trade agreements that reduce governmental barriers to trade and enhance intellectual property protections.

And finally, it does not mean cranking up government spending in a fantasy like way hoping somehow it will move the economy ahead, but instead reducing the size of government to free up resources for more productive use in the private sector.

If we fail to change course in such a manner, then, yes, slow growth is inevitable.