In the television drama, The West Wing, President Josiah Barlet, played by Martin Sheen, laments to his chief of staff, Leo McGarry, about the challenges of growing the economy. "Historically, 2 to 2.5 percent GDP expansion is classified lackluster even anemic economic growth," Bartlet said. "Four and a half to 5 percent is needed just to be considered robust and not even spectacular."
Of course, The West Wing is a work of fiction. But in the show, Bartlet is a Nobel Prize winning economist, though, as a Democrat, his views are clearly Keynesian in nature on the show. References to the work of Milton Friedman are few, but when he is mentioned, it is usually snide or dismissive. Still, the definition of positive economic growth Barlet shares is accurate.
Another economic marker, though not mentioned in the show, is job creation. An economy that is creating 120,000 to 150,000 jobs each month is effectively not creating jobs because this is the level of monthly creation needed to keep up with population growth. If an economy experiences two consecutive quarters of economic contraction, it is considered to be in a recession.
When it comes to economic growth, though, the United States is barely limping along. If 2 to 2.5 percent growth is "classified lackluster even anemic economic growth," as Bartlet said, recent quarterly estimates from the Bureau of Economic Analysis should be considered dismal or exceedingly poor. In the first quarter of 2016, real GDP grew by only 0.8 percent. The early estimate for the second quarter was 1.2 percent. That estimate, however, was revised down slightly Friday to 1.1 percent.
While such dismal economic growth may not necessarily be the new normal, the United States’ economy is in unusual territory. The United States has not experienced annual economic growth above 3 percent since 2005. As has been mentioned before in this space, President Barack Obama is likely to be the first president since Herbert Hoover not to experience economic growth above 3 percent during his presidency.
The annual changes in GDP from 1981 through 2015 is in the chart below.
The United States’ recovery after the July 1981-November 1982 recession was incredibly robust. The economy grew at by 4.63 percent in 1983 and 7.26 percent in 1984. In fact, GDP growth never fell below 3.46 percent in Ronald Reagan’s presidency after the recession in the early 1980s. The Reagan administration focused on income tax cuts to spur economic growth. While he also raised some taxes, Americans saw a net tax cut during his administration. Reagan’s record on spending is subject to much criticism, primarily because of increases in defense spending. But, overall, total spending under Reagan grew by 2.5 percent annually, according to the Cato Institute.
The weak recovery that the United States has experienced under Obama is a result of regulations that are strangling the economy, larger tax burdens on Americans, and a growing of budget deficits and debt. The United States has been down this road before. After the Great Depression, President Franklin D. Roosevelt and his administration managed to pass and implement a host of new economic laws and regulations, most of which benefited the politically connected or industries with which the administration hoped to curry favor. Of course, we know today that the New Deal actually prolonged the Great Depression by seven years.
Sadly, too many lawmakers keep doing the same thing over again while expecting a different result. That is the very definition of insanity. If lawmakers were serious about economic growth and giving all Americans a boost, they would go back to what we know works: pro-growth policies that make the tax code fairer and less complicated, reductions in regulations, and spending cuts.