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The Tyranny of Low Expectations
A sign of the times is the renewed recognition of the problem of slow growth — especially compared to the 4% rate of more recent years, which gives our project its name. As Jared Bernstein writes in the New York Times:
With the budget-and-tax showdown dominating headlines, most Americans probably missed an even more ominous story: according to a report by the Congressional Budget Office, America’s underlying growth rate — that is, the best the economy could do, under optimal conditions, without driving up inflation — has slowed from just under 4 percent a year in 2000 to just under 2 percent today.
Bernstein lists the problems of the "new normal" of slow growth, which readers should be all too familiar with after reading our contributors' work: higher unemployment, lower investment in capital stock and infrastructure, and weak demand that "is chipping away at the labor and capital supply and productivity advances needed to increase our potential growth rate." Bernstein is also very clear about the benefits of higher growth: among which, as our readers know, are not just "real gains experienced by middle- and lower-income households" but also "more government revenues." However, Bernstein is not ready to include himself among the ranks of the supply-siders:
Our whole policy focus in this space tends to be on tax policy — specifically, on cutting taxes on investors and so-called job creators. But that type of “supply-side” taxation has obviously been a bust. We have to look elsewhere, and fast.
He does at least suggest that "we might want to think of immigration reform as a way to counteract our decelerating work force," a somewhat weaker version of the pro-immigration case emphatically made at the 4% Growth Project's conference on immigration earlier this week. Still, if the first step to recovery is recognizing that you have a problem, then Bernstein, unlike Warren Buffett, at least deserves credit for understanding the limitations of the "new normal" and the promise of 4% growth. Read More