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What To Do About Those Lousy Payroll Numbers? Grow!

July 8, 2011 5 minute Read by James K. Glassman

"Small gain in payrolls very concerning.” That’s the understated way Moody’s Dismal Scientist website headlined the news from the Labor Department this morning. Employment had increased just 18,000 last month – after an anemic 25,000 in May. Unemployment jumped to 9.2%. The stock market, which had risen every day since June 27 — a total of about 800 points on the Dow — quickly took a dive. These new data stand in stark contrast to the debate going on now in Washington, which is concentrated, to the point of obsession, on various plans to reduce the projected federal deficit (the annual shortfall between revenues and expenditures) and the debt (the accumulated deficits). Let’s stipulate that a smaller debt would be helpful and that cutting unnecessary government spending is always a good idea. But the focus is all wrong. What the U.S. economy needs is growth. The lousy employment figures aren’t a function of high debt; they’re the result of an economy that isn’t growing nearly as fast as it should. High growth leads to low unemployment. Inherently, the U.S. is a boiling cauldron of growth. Unfortunately, government policies in recent years have kept a lid on that cauldron. To get back to job growth American innovation, animal spirits, and human creativity must be unleashed. If we can get faster growth and reasonable constraints on spending, the debt problem will shrink as the economy expands. The Congressional Budget Office calculates that every percentage point of extra growth in Year 1 reduces the forecast debt by more than $700 billion over Years 1 through 10. An extra point of growth in all 10 years cuts the debt by many trillions. Alex Brill ran the numbers and concluded that simply boosting growth to 4% by 2017 and maintaining that level for five years would cut the debt in 2021 by $3.7 trillion. Four percent is not a figure plucked from thin air. It is eminently obtainable. The U.S. has grown at 3.3%, on average, since World War II and hit 4% in one-third of the past 40 years. The problem is that forecasts by the CBO and a consensus of economists see growth in the range of just 2% to 2.5% for the long term. Just as bad, economists’ short-term forecasts, which have been far rosier, aren’t being met. For this year, the CBO in January projected 3.1% growth, for next year 2.8%, and for 2013 to 2016 an average of 3.4%. After that recovery up-tick, projections are that the economy will settle into a sustainable – and disturbingly low – growth rate of 2.4%. But, in fact, the U.S. economy grew by just 1.8% in the first quarter of 2011, and The Economist magazine’s poll is predicting 2.5% for the year. The debt arithmetic works both ways. If growth is a point lower than expected, then the debt over 10 years will grow by more than $700 billion. But enough of these numbers! What the United States needs to do is not change the math but change the debate. Every policy change should be judged by a single criterion: Will it increase growth or not? The array of pro-growth policies is vast – and begins with changes with fiscal policy. Lower tax rates – both on businesses and individuals — encourage more savings, investment, and work by increasing incentives. Cutting unnecessary government spending allows enterprise to thrive by leaving more money in private hands and by reducing the drag of debt. Smarter policies on immigration and education increase the stock of human capital – the source of innovation and growth. The Bush Institute, which held a major conference in April on what’s called the 4 Percent Project, will soon release a blueprint for achieving that level of growth. But our ideas will, we hope, be a few among many. The greater goal is to get America focused not on green-eyeshade tinkering with budget numbers but on the more inspirational and more critical matter of getting the U.S. economy growing to its 4% potential.


Author

James K. Glassman
James K. Glassman

James K. Glassman is the Founding Executive Director of the George W. Bush Institute and the interim Director of the Military Service Initiative.

He served as undersecretary of state for public diplomacy and public affairs from June 2008 to January 2009, leading the government-wide international strategic communications effort. Among his accomplishments at the State Department was bringing new Internet technology to bear on outreach efforts, an approach he christened “Public Diplomacy 2.0.”

From June 2007 to June 2008, Glassman was chairman of the Broadcasting Board of Governors (BBG). He directed all non-military, taxpayer-funded U.S. international broadcasting, including Voice of America, Radio Free Europe, and Alhurra TV.  Glassman was a senior fellow at the American Enterprise Institute in Washington, D.C., from 1996 to 2008, specializing in economics and technology.

He has been moderator of three weekly television programs: Ideas in Action and TechnoPolitics on PBS and Capital Gang Sunday on CNN.

Glassman has had a long career as a journalist and publisher. He served as president of Atlantic Monthly, publisher of the New Republic, executive vice president of U.S. News & World Report, and editor and co-owner of Roll Call, the Congressional newspaper. Between 1993 and 2004, he was a columnist for the Washington Post and the International Herald Tribune and continues to write regularly for Kiplinger’s Personal Finance and Forbes. Shortly after graduating from college, he started Figaro, a weekly newspaper in New Orleans. His articles on finance, economics, and foreign policy have appeared in The New York Times, The Wall Street Journal, the Los Angeles Times, and various other publications.

Glassman has written three books on investing, and in April 2012 was appointed to the Investor Advisory Committee of the U.S. Securities and Exchange Commission. He was formerly a member of the Policy Advisory Board of Intel Corporation and a senior advisor to AT&T Corporation and SAP America, Inc.

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