The biggest elephant in the room that no one wants to acknowledge is the possibility that future economic growth will not be as rapid as it has been in the past. Every candidate makes optimistic assumptions about future growth because they allow candidates to predict balanced budgets with fewer spending cuts.
Average real annual GDP growth per capita was nearly 3 percent during the 1960s, just over 2 percent during the 1970s, ’80s, and ’90s, and has been less than 1 percent during the most recent decade. Perhaps we will return to higher growth rates, but there is no guarantee that we will. Perhaps we have already consumed the low-hanging fruit of technological progress, and the pace of innovation will slow. Maybe our older, wealthier population has become less ambitious and less hard-working.
The slogan “It’s morning in America” wins elections, but what if it is mid-afternoon? Permanently lower growth rates would require permanently reduced government spending and benefits. As bad as this sounds, slow growth combined with unaffordable government programs would be worse.
Rapid, dramatic cuts and tax increases now, with the unemployment rate above 8 percent, would be unwise, but budgetary realities will assert themselves whether we plan for them or not. Committing to a plan now would at least reduce the uncertainty investors feel about how the situation will be resolved, and might even soften the blows that are coming. The country needs a long-term plan that will generate surpluses to pay down debt, even if economic growth turns out to be permanently weaker than it has been. Don’t expect to find such a plan on any candidate’s website.
– David Barker, a former economist for the Federal Reserve, is author of “Welcome to Free America,” a new book that charts out what life might be after the collapse of the US government.
