Since the end of the Great Recession in 2009, the U.S. economy has experienced its weakest recovery on record, with sluggish income growth, continued long-term unemployment, and historically low labor force participation. Still, these conditions need not be the “new normal.” The right changes in government policies can make a significant difference. Here is a brief assessment of the current economic climate and the kinds of policies that would promote more robust growth.
A Subpar Recovery
Over the past seven years, real growth in gross domestic product [GDP] has averaged just 2.0 percent annually, well below the 3.0-percent historical trend rate in the U.S. Last year the economy grew by just 1.6 percent, the lowest annual growth rate in five years. Looking forward, since 2012, the Congressional Budget Office [CBO] has consistently ratcheted down its expectations for future expansion, and now projects real GDP to grow by an annual average of just 1.9 percent over the next 10 years. Without more robust growth the economy will struggle to support the 80 million retirees expected over the next couple decades, as well as the working-age population.
Government has Contributed to the Problem
The Obama Administration’s heavy spending drained economic resources that otherwise would be available for growth-producing activities. In addition, the sharp increases in government debt – now at near-record post-World War II levels – are crowding out additional capital investment. CBO has also acknowledged the Affordable Care Act creates incentives for people to work fewer hours over the medium and longer term.
Pro-Growth Policies Can Make a Difference
Congress can help reverse this trend with the right combination of pro-growth policies, including deficit reduction, spending restraint, comprehensive tax reform, welfare reform, Obamacare repeal-and-replace legislation, and regulatory reform. All can promote more robust growth over the longer term.
The Benefits of a Stronger Economy
Stronger economic growth can offer tangible benefits for American families. In the latter part of the 1990s – with the Federal Government reining in spending and running a string of budget surpluses – real GDP was growing at about 4.5 percent per year, more than twice the rate of growth today. From 1995 through 1999, real median household income grew by $5,000, or nearly 10 percent. Pro-growth policies will support a robust labor market as well, fostering greater opportunity and upward mobility that naturally alleviates poverty. Stronger growth also yields higher revenues without tax increases, providing government the resources to maintain a strong safety net.