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The Magic of 1 Percent
Everything depends on economic growth.


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Jim Lacey

One wonders if today’s policymakers and regulators would be so cavalier about enacting measures that will destroy 1 percent of annual growth if they had any idea of what that really meant. If the economy continues growing at its current annual rate, U.S. GDP will double in 90 years. If we cannot do any better than last quarter’s 0.4 percent, however, it will take almost two centuries to double. But if we added a mere 1 percent to our current annual growth rate we would double the size of the nation’s economy in 40 years. Of course, even that pales when compared to what will happen if we achieve higher growth rates. If we could realize just the normal post-recession growth and maintain it, we would more than double the size of the economy by the end of the decade.

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As that may be too much to hope for, let’s cut that torrid pace in half and shoot for what we achieved during the Reagan years. Such a relatively modest rate of growth would double the size of the economy every 16 years. That would mean that when today’s newborn finishes high school our GDP would be $30 trillion. When his or her first child starts school the economy would be a whopping $60 trillion. Consider how much easier it becomes to pay for Medicare, Medicaid, Social Security, and a host of other government goodies if there is a $60 trillion pot to draw from, compared to approximately $15 trillion today.

Forgoing a mere 1 percent growth through needless regulations wipes out close to $150 billion in potential growth in a year. That is more than all the “tax the rich” proposals the administration has put forward during the debt crisis. Through compounding, that annual loss of 1 percent would cost the economy almost $2 trillion in forgone growth by the end of the decade. Even in Washington $2 trillion still counts as a lot of money. It is, for instance, enough to pay the average salary of 8 million unemployed Americans for the next half-dozen years.

Given the long-term cost of slowing economic growth by a mere 1 percent, it takes a special kind of idiot to advocate growth-destroying policies and needless regulations. One is therefore amazed to find so many of them concentrated in just a few square miles in Washington.

— Jim Lacey is professor of strategic studies at the Marine Corps War College. He is the author of the recently released The First Clash and Keep from All Thoughtful Men. The opinions in this article are entirely his own and do not represent those of the Department of Defense or any of its members.



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