Why Has Three Percent Economic Growth Been So Elusive?

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Dr. Mark W. Hendrickson recently retired from his position as adjunct professor of economics and entrepreneurship at Grove City College, where he taught since 2004. He is also a Fellow for Economic and Social Policy with the Institute for Faith & Freedom

GROVE CITY, PA — June 29, 2020. — Here is an economic riddle that has been puzzling many people: Why has economic growth in the United States remained below three percent for so long?

The growth of US gross domestic product (GDP) going all the way back to 1790 has averaged less than three percent in only three decades: the 1930s (Great Depression), the 2000s, and the 2010s. In fact, the last time the US experienced over three percent growth for a single year, much less a decade, was 2005. Fifteen years of subpar growth is a long drought for any economy, and especially for the richest economy in the world.

One theory for why growth has slowed is the notion that the US economy increasingly has become more of a service economy and it is notoriously difficult to measure productivity gains in service industries. While I would be among the first to acknowledge that current techniques for measuring GDP are problematical and perhaps inadequate, there are several more obvious, less academic reasons that explain the tepid growth of recent years.

One factor is the phenomenon of American males in their prime working years choosing not to work. According to demographer Nicholas Eberstadt, there are approximately ten million healthy American males aged 25 to 54 – about ten percent of that age cohort – who have dropped out of the workforce. [Note: Since these people are not looking for work, they aren’t counted in the official unemployment rate.] The positive spin on this is that our country has attained such affluence that the economy can continue to grow (albeit more slowly) while ten million men live with Mom and Dad or with a girlfriend or some buddies, working only occasional short-term gigs to earn some pocket money. Obviously, if ten million healthy adults are resting on their oars instead of engaged in productive labor, that represents a significant drag on GDP growth.

A second factor retarding economic growth is debt. In economic terms, borrowing money to fund current expenditures shifts consumption from the future to the present. Thus, the accumulated trillions of dollars of debt taken on by individuals, businesses, and governments in the past are taking a huge bite out of consumption today as large shares of present income are necessarily diverted to debt repayment, crippling current consumption.

A third, and I believe the major retardant to economic growth, is government. Beyond the obvious and oft-publicized burdens of taxes and regulation, volumes could be filled listing counterproductive, growth-stifling government programs.

Take energy, for example: our economy has prospered over the decades from the availability of affordable energy. In recent years, though, the quixotic “green” policy of subsidizing renewable energy has meant that Americans have had to pay higher-than-market prices for energy, leaving less wealth with which to buy other goods and services.

Then there are the Rube Goldberg bundles of special-interest policies that amount to double and triple taxation on Americans. One example: federal food policy. First, Uncle Sam uses tax dollars to subsidize various foodstuffs; then government taxes us more to store the resulting surpluses while also taxing us more to provide food stamps that help poorer Americans pay for the artificially higher-priced groceries.

Some people view government as a generous economic benefactor. That perception is understandable, since the federal government dispenses some $4 trillion per year (more during the pandemic emergency) but if they would look more closely, they might notice that the price of things that government subsidizes tend to rise. (See the chart in John Mauldin’s article “Inflation Angst” from the 12/7/19 issue of his excellent free weekly letter, “Thoughts from the Frontline.”) As a general rule, free competitive markets lead to lower prices while government intervention leads to higher prices.

Looking to the near future, don’t be surprised if we see quarterly reports of GDP growth above the three percent threshold. That often happens after a severe drop in GDP such as we are currently experiencing as a result of the pandemic-induced lockdown. Longer term, though, we may not achieve sustained growth greater than three percent unless government spending shrinks, debt falls dramatically, and more healthy adults do their share to produce the wealth we all consume. What do you suppose the odds are that those changes will occur?

Institute for Faith & Freedom – Grove City College.

—Dr. Mark W. Hendrickson is a retired adjunct faculty member, economist, and fellow for economic and social policy with the Institute for Faith and Freedom at Grove City College.


TribuneWhy Has Three Percent Economic Growth Been So Elusive?

Comments 1

  1. I just read your article on Obama’s Marxist-Leninist economics that you published in Forbes Magazine in June 2012. Beside spewing a bunch of opinions without providing any factual substantiation for your opinions, I think you main mission is to provide the cover of pseudo economic rationality to push useless and outdated conservative mental models on your students.

    As to this article in the Tribune, you decided to provide a few actual factual backing to some of your arguments, but not for all of them.
    For instance:
    – You argue without providing any proof, that “the major retardant of economic growth is government”. In this case, the retard argument is the one you are making.
    Historically there would not have been any of the major advances we are enjoying, whether industrial or scientific without government support: atomic energy, the internet, high speed trains, airplanes, etc…
    In the US, the government has been there time and again mostly to support large companies.
    The latest example is the rescue package provided by the current administration.
    A prior example is the massive rescue of US Banks and Financial institutions that was done by the Obama government after the 2008 financial debacle that caused by the absence of regulations and non-existent enforcement. Oh, I forget, in your sclerosed brain, Obama is supposed to be a Marxist. Really?
    – Another example is this: “In recent years, though, the quixotic “green” policy of subsidizing renewable energy has meant that Americans have had to pay higher-than-market prices for energy, leaving less wealth with which to buy other goods and services.”

    You are totally leaving out of your discourse the huge externalized costs of fossil fuel production that energy companies are not factoring into their cost. If this is not a form of subsidy, then I do not know what is?
    You are not considering the growing economic cost of Global Warming that is already very real.
    It has been scientifically proven time and again that Global Warming is directly attributable to human activity. Of course, if your brain is stuck in the late 18th century, then non of this exist.

    For several years, most large insurance and re-insurance companies in the US and around the world have been factoring the economic impact of global warming in their appreciation of risks and in the computation of the insurance premiums they charge their customers. That is real, is it not?
    You pretend to be an economist… If you are an economist, then I am the Pope.
    Since you are totally wedded to special interests, most likely you are denying the existence of Global Warming. Hence, thanks god, there is nothing that comes disrupt the nice little mental models that you want to believe in.
    This is all nice and dandy until your house gets destroyed by the next super storm. Maybe then you will wake up?

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