The Corner

Economy & Business

Our Economic Stagnation Highlights the Need for Deeper Reforms

In Bloomberg, Tyler Cowen paints a grim hypothetical picture of what future American decline might look like: high levels of negative partisanship, paralysis both at home and abroad, escalating rates of addiction, and cultural amnesia. Of course, this picture is hypothetical, and steps could be taken to keep it from becoming a reality.

Economic dynamism is not the solution to all of the challenges Cowen outlines, but it can address some of them. For the past 18 years, the United States has been in a slowdown of growth that is unprecedented in living memory. Adjusted for inflation, the U.S. economy grew at about 3.5 percent annually from 1947 to 2000. Since 2000, it has grown at about 1.9 percent annually. This stagnation of overall growth (which is also more or less matched by a decline in per capita income growth) makes it harder for the United States to meet its domestic and international commitments. It diminishes the U.S. economy’s might relative to the rest of the world, which has direct effects on the ability of the United States to project power abroad. This decline also likely has larger social implications, too — hurting fertility, civic capital, and social comity.

If economic growth in the 21st century had matched historical norms, the American economy would be about 30 percent bigger than it now is. If it had grown at a more modest 3 percent annually, it would be almost 20 percent bigger. That’s more money for fighter jets, bridges, and American families. Reversing this decline might take some reforms, though.

Trends in immigration and trade have put pressure on working-class wages, so efforts to tighten the labor market could buoy the fortunes of many blue-collar Americans as well as the U.S. economy as a whole. (And, if automation really is eating up jobs, that’s an even bigger reason for a tighter labor market.) Reforms could also be made to many sectors of the American economy. For instance, the American health-care system is larded with many anti-market qualities that make health care more expensive and inefficient. Trimming certificate-of-need laws, diversifying training pathways, and funding more medical residencies could help expand the supply of health care in America. These wide-ranging reforms to the health-care market could also potentially help address the growth of Medicare costs.

Economic growth is far from a panacea, but the current secular growth stagnation points to a deeper need for reform.

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