Writing for the latest Commentary magazine (the article is not yet posted online), James Pethokoukis of the American Enterprise Institute explores the claim that “maybe the good times really are over for good.” Specifically, Pethokoukis examines the latest iteration of the argument that the American economy has hit a wall and can expect only sluggish growth moving forward for years to come.
While Pethokoukis explains that past predictions of economic stagnation have fallen short of the mark, he also says “it wouldn’t be the worst idea to assume that generating fast economic growth will be harder in the future than in the past. Indeed, a little paranoia about impending national decline could be an effective motivational tool for Washington.”
… [W]e should assume there really aren’t enough high-investment projects out there for the private sector and start instituting policies that might help create more of them. For instance, a recent study by Boston University economist Laurence Kotlikoff finds that eliminating the U.S. corporate income tax would produce “rapid and dramatic increases in American investment, output, and real wages.” The innovation guru Clayton Christensen recommends phasing out capital-gains taxes as a way of encouraging more transformation innovation that creates new goods, services, and jobs. And does anyone believe the U.S. education system is maximizing our human capital? A 2013 study by Raj Chetty, John Friedman, and Jonah Rockoff finds that replacing a teacher in the bottom 5 percent of quality with an average teacher would increase the present value of a student’s lifetime income by approximately $250,000 per classroom. The consulting firm McKinsey thinks better public policy in areas such as energy, trade, infrastructure, and education could create nearly an additional million jobs a year by 2020 and $2 trillion in additional GDP growth. From these few examples, it should be clear the U.S. economic policy is hardly anywhere near optimal for maximizing growth.