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October 2016 Brief: Volume 23, Number 29

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Do We Have to Settle for the New Economic “Normal”?

 

By John Hendrickson

 

 

John H. Cochrane, a Senior Fellow at Hoover Institution, wrote in The Wall Street Journal that “America’s foremost economic problem is sclerotic growth.”[1] The economy — even after the trillions spent by President Barack Obama and Congress — has failed to significantly recover from the Great Recession. In fact, as columnist Terry Jeffrey noted, “America has seen ten straight years (2006 through 2015) without a single year of 3 percent growth in real GDP (gross domestic product).”[2] This period of long-term slow economic growth is described as the “new normal” for the American economy, but as this trend continues, it is creating numerous consequences for the nation. As John Cochrane explains:

 

If the economy continues to expand at only 1 percent to 2 percent a year, instead of the historical 3 percent to 4 percent, then current economic and political problems will become crises. Almost everything depends on growth: progress for the middle class, hope for the unfortunate, solvency for social programs, environmental protection, [and] defense.[3]

 

Slow economic growth is not the only albatross on the economy. The escalating national debt, which is approaching $20 trillion, is a serious crisis that is not only a threat to our national security, but also to our domestic economy. In fact, we are reaching a point where the federal government may not be able to sustain itself. Out-of-control government spending and escalating costs of entitlement programs are key factors that are responsible for this debt crisis. A large contributor to the debt crisis is health-care spending. Entitlement programs such as Social Security, Medicare, and Medicaid already consume 47 percent of the federal budget.[4] Michael D. Tanner, a Senior Fellow at Cato Institute, states that when the unfunded liabilities of the entitlement programs are taken into consideration, “our real indebtedness exceeds $90.5 trillion.”[5]

 

The other economic problems that are confronting the nation, which are directly related to the slow economic growth and national debt, include high levels of taxation and regulation that have hindered economic growth. In addition, unemployment continues to be a crisis for Americans across the nation. Wages have remained stagnant or decreased, and an increasing number of people are dependent on some form of governmental assistance. This is the “new normal” economy of the early 21st century. This is the consequence of progressive economic policies. Columnist Larry Kudlow noted that President Obama’s policies of increasing taxes, spending, and regulations is “producing the worst recovery since World War II.”[6]

 

The question that remains, then, is how we reverse course and solve these urgent economic problems. “What America needs to see a true recovery is not just a span of years without a recession, but a return to the principles of limited government and self-reliance,” argued Terry Jeffrey.[7] This means that policymakers must consider a series of economic reforms that will reduce tax rates, reduce spending, eliminate excessive regulations, and reform entitlement programs. Historically, today’s policymakers should look to past presidential administrations such as that of President Ronald Reagan, who was able to not only lower taxes, but unleash a period of significant economic growth.

 

Perhaps the best example for policymakers is to follow the policies of Presidents Warren G. Harding and Calvin Coolidge. In 1920, the nation was confronted with a severe depression, and Harding campaigned on a “return to normalcy” theme which centered on reducing spending, lowering tax rates, and paying down the national debt. Harding and Coolidge both enacted these policies, which created the economic prosperity of the “Roaring” 1920s. Patrick J. Buchanan describes the result of the Harding-Coolidge economic policies:

 

Result: Unemployment, 12 percent when Harding took office, was 3 percent when Calvin Coolidge left. Manufacturing output rose 64 percent in the Roaring Twenties. Between 1923 and 1927, U.S. growth was 7 percent a year. At decade’s end, America produced 42 percent of the world’s goods.[8]

 

Perhaps the most controversial part of the Harding-Coolidge economic policy was their belief in a protective tariff to protect American manufacturing and limit immigration. In fact, Coolidge argued that a policy of “restrictive immigration” and a “tariff for protection” were two key aspects that helped to bring prosperity to the nation.[9]

 

Donald J. Trump released his “America First Economic Plan,” which follows some of the Harding-Coolidge policy ideas. Trump’s “America First Economic Plan” offers similarities to traditional conservative policies that will revive the American economy and return us to normalcy. Larry Kudlow noted that Trump’s economic plan “will generate substantial new investment, business formation, jobs, and growth — and hence higher wages.”[10]

 

Trump’s economic plan can be debated, but his economic vision of across-the-board tax cuts and simplification, regulatory reform, and reform in trade and immigration policies will result in a stronger economy. Perhaps the most difficult struggle will be cutting spending and addressing the fiscal crisis, which can no longer be ignored; nor can we allow the “new normal” economy to continue.

 

Trump’s “America First Economic Plan” follows in the direction of the Harding-Coolidge-Reagan philosophy, and only by moving in this direction will we restore American prosperity.

 

Endnotes:

[1] John H. Cochrane, “The Clinton plan’s growth deficit,” The Wall Street Journal, August 11, 2016, <http://www.wsj.com/articles/the-clinton-plans-growth-deficit-1470957720> accessed on August 12, 2016.
[2] Terence P. Jeffrey, “2006 vs. 2016,” Townhall.com, June 8, 2016, <http://townhall.com/columnists/terryjeffrey/2016/06/08/2006-vs-2016-n2175214> accessed on August 12, 2016.
[3] Cochrane.
[4] Michael D. Tanner, Going for Broke: Deficits, Debt, and the Entitlement Crisis, Cato Institute, Washington, D.C., 2015, p. vii.
[5] Ibid.
[6] Larry Kudlow, “Donald Trump is the middle-class growth candidate,” National Review Online, August 5, 2016, <http://www.nationalreview.com/article/438747/donald-trump-will-outline-pro-growth-pro-middle-class-tax-cut-plan-his-economic> accessed on August 12, 2016.
[7] Jeffrey.
[8] Patrick J. Buchanan, “Bush’s new ‘axis of evil,’” The American Conservative, February 10, 2011, <http://www.theamericanconservative.com/2011/02/10/bushs-new-axis-of-evil/> accessed on August 12, 2016.
[9] Calvin Coolidge, “Address delivered to a group of Labor Leaders, who called on the White House, September 1, 1924,” in Foundations of the Republic, University Press of the Pacific, Honolulu, Hawaii, 2004, p. 83.
[10] Kudlow.

 

John Hendrickson is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact him at Public.Interest.Institute@LimitedGovernment.org.

 

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