James Pethokoukis

Politics and policy from inside Washington

Obama and America’s 20-year bust

March 31, 2010

It is an alarming, jaw-dropping conclusion. The U.S. standard of living, says superstar Northwestern University economist Robert Gordon in a new paper, is about to experience its slowest growth “over any two-decade interval recorded since the inauguration of George Washington.” That’s right, get ready for twenty years of major-league economic suckage. It is an event that would change America’s material expectations, self-identity and political landscape.  Change in the worst way.

Now it’s not so much that the Great Recession will morph into the Long Recession. More like ease into the Great Stagnation. As Gordon calculates it, the economy will average only 2.4 percent annual real GDP growth over that span vs. 3 percent or so during the previous 20 years. On a per capita basis, the economy will grow at just a 1.5 percent average annual rate vs. 2.17 percent between 1929 and 2007.

That might not seem like much of a difference, but it really is. Over time, the power of compounding would create a huge growth gap measured in the trillions of dollars. To look at it another way, assume you had an annual salary of $100,000. If you received a 1.5 percent raise each year, you would be making $134,000 after 20 years, $153,000 after 40 years. But a 2.17 annual raise would boost your income to $153,000 after 20 years and $236,000 after 40 years.

For Gordon, the culprit is weaker productivity. Productivity, economists like to say, isn’t everything — but in the long run it is almost everything. A nation’s GDP growth is little more than a derivative of how many workers the nation has and how much they produce. And if Gordon  is correct, U.S. productivity is about to weaken. He forecasts that over the next two decades, the metric will grow at just a 1.7 percent annual rate. From 1996-2007, economy-wide productivity averaged just over 2 percent with GDP growing at 3.1 percent.

Gordon’s argument is simple: The productivity surge starting in the 1990s was driven primarily by the Internet, though drastic corporate cost-cutting in the early 2000s helped, too. Going forward, though, Gordon thinks the IT revolution will be marked by diminishing returns. He concludes, for instance, that most of the product innovations since 2000, like flat screen TVs and iPods, have been directed at consumer enjoyment rather than business productivity. (Also not helping are a more protectionist trade policy and a tax code where the penalties on savings and investment are about to skyrocket with rates soaring 60 percent on capital gains and 200 percent on dividends.)

All this dovetails nicely with research showing financial crises are followed by negative, long-term side-effects such as slow economic growth and higher interest rates. Lots of debt, too. Indeed, researchers Carmen Reinhart and Kenneth Rogoff find advanced economies with debt-to-GDP ratios above 90 percent grow more slowly than less-indebted ones. (Japan is the classic example.) America is on track to hit that level in 2020, according to the Congressional Budget Office.

But maybe Gordon is wrong. Productivity has been surprisingly robust during the downturn, helping the overall economy (though not the labor market) weather the storm better than most expected. Maybe nanotechnology or genetic engineering will be the next Internet and ignite further creative destruction. Yet even if Gordon is correct, Americans still control their own economic destiny.

Since the 2008 election, American economic policy has been about wealth preservation (keeping the economy from sliding into a depression) and wealth redistribution (healthcare reform.) Wealth creation? Not so much.  That needs to change. Washington needs to focus on growing the economy and competing with the rest of the G20 nations, including the other member of the G2, China. Every policy — from education to trade to the tax code — needs to be seen through that lens.

America faced a similar turning point a generation ago. During the Jimmy Carter years, the Malthusian, Limits to Growth crowd argued that natural-resource constraints meant Americans would have to lower their economic expectations and accept economic stagnation — or worse. Carter more or less accepted an end to American Exceptionalism, but the 1980 presidential election showed few of his countrymen did. They chose growth economics and the economy grew.

Now they face another choice. Preserve wealth, redistribute wealth or create wealth.  Hopefully, President Barack Obama will choose door #3. Investing more in basic research (not just healthcare) would be a start, as would slashing the corporate tax rate. A new consumption tax would be better for growth, but only if it replaced the current wage and investment income taxes. Real entitlement reform would help avoid the Reinhart-Rogoff scenario. The choices made during the next few years could the difference between America in Decline or the American (21st) Century.

Comments

“Hopefully, President Barack Obama will choose door #3.”

Oh, god, thanks for the laugh.

Posted by JHE | Report as abusive
 

Well done, James. You initial report on this topic was far too acquiescent as regards the forecasts of Mr. Gordon. Drawing on history – and especially the foolish Jimmy Carter – is a good counter-argument. I’ll take door #3 please. Or should I say: Economic growth for $1000 please, Alex.

Posted by gotthardbahn | Report as abusive
 

Just a note – in the early 90′s, every economist was saying exactly what Gordon is saying: Productivity was going to slow and hence economic growth. Of course productivity actually grew and we became a much more prosperous society. My point is that these things are very difficult to predict. One thing that is not difficult to predict is the effect of the current administration’s policies on growth and productivity all else equal. It’s not a pretty picture.

Posted by Scott | Report as abusive
 

Barack Obama? Former community organizer and current crypto-Marxist? Can’t you guess what he is likely to choose?

Posted by Speaking Truth to BS | Report as abusive
 

Actually, at a 1.5% growth rate, it would be more like $181,000 after 40 years

Posted by guiowen | Report as abusive
 

Obama is the ultimate culture test. Is there a western culture? Is there an American culture and does it matter if you select as our leader a man who rejects both?

According to the left there are no consequences as long as your intentions are good. I would suggest that intentions don’t matter, only results do.

I wonder if conservatives can recover from this. For us here in Europe it always was a great comfort to know there was a country where common sense and self reliance ruled. But it was clear you could not resist the temptations of politically correctness and wishful thinking for ever.

I have no doubt you will attempt to recover, but I fear it will be nothing but a long drawn out goodbye.

Posted by Daniel565 | Report as abusive
 

“Productivity has been surprisingly robust during the downturn, helping the overall economy (though not the labor market.”

Productivity is up BECAUSE of the disastrous labor market. By increasing the worker/production ratio, each worker fired increases productivity.

However, increased productivity should have raised hiring by now, as it has in every other recession long before this point. The problem? Insanely high government spending is hoovering up our seed money, and banks and business, which have to plan for the future, are terrified to expand. In the case of business, where is the rising economy that will buy more production? Or take risks, as in the case of the banks, who have a sweet guaranteed profit from the Fed right now and can see the flaccid economic growth as clearly as anyone else, except Harry Waxman. (Yes I know I’m simplifying greatly, but this is the gist of it.)

Why you think Obama is going to choose to create wealth is a mystery. He’s been pretty honest throughout the campaign and right to the present that he is uninterested, and indeed opposed to, strong wealth creation. When I read an article like yours: concise, informative, clear, and well-researched, I’m always bowled over by the fantasy ending where Obama turns into some other person, Bill Clinton or Bush I, a centrist who just needs a little nudge to change course and make the right decision.

He’s doing exactly what he said he would do his entire public life: shrink the American economy by reducing consumption; drain economic vitality by transforming the major industrial sectors into a relatively few very large private-public-union players, as, for example, the health bill does to Medical Insurance and Pharmaceuticals; shrink the small business sector, especially of any potential status quo up-turners, which could diminish the power of government and the status quo; and regulate the labor market by enforced unionization and hurdles to hiring.

Don’t get me wrong; in big speeches to large audiences in major venues, he’s happy to lie and say the opposite, but these lies have always been such a transparent contradiction to everything else he says and does, so obviously false, that they can hardly be considered as lies.

His statement supporting off-shore drilling is interesting. Since it would lower energy prices, increase employment, and be a boon to small business, I look forward to the qualifications of the coming days: areas that can’t be drilled in; environmental regulations that hamstring drilling; tying it to passage of cap-and-trade; and who knows what else.

I’d love to be wrong about that last paragraph, but I won’t be.

Posted by Joe Y | Report as abusive
 

The US should take all 3 doors,

You have a great leader, in my liftime Clintion was intellectually impressive, he just got blown off, its all about perception…

Great Canadian movie: ‘The Decline of the American Empire’,

sequel:

‘The Barbarian Invasions’.

be careful, you might get what you wish for.

Posted by Gandhiolfini | Report as abusive
 

“Productivity” inherently frees resources for other use, but if the regulators insist preventing the process (see Big Labor’s grip) or skimming any gains (see tax codes, cap-and-trade) then there is no point to seeking productivity.

Posted by nonono | Report as abusive
 

Well it’s nice to know there’s more than one minaret atop the ivory tower from which theism of the Invisible Hand is preached. From up there, pundits see this as a game between America and Other Places. From street level, it’s more like a gladiator match about domestic survival, one that fewer and fewer people believe will end well. Meanwhile, Other Places have America licked hands down.

Too bad those at the top, having overindulged in Reagan Juice have gone on gaily building their fictitious economy skyward by pulling essential materials from the foundation. The U.S. economy is now polarized and unstable.

There may be just time enough to open Door #2 before the whole thing comes tumbling down. Then again, there may not.

Posted by The Bell | Report as abusive
 

So what’s the difference between this prediction and the work of the ‘Malthusian Limits to Growth’ crowd’s predictions in the 70′s? Are you proposing that they got it wrong but you’ve got it right now? It’s just a matter of continuing to purse (discredited) supply side economic theory to avoid the (now) inevitable decline of America?

Baloney. Superstar economists have proven themselves unreliable and minor pundits should find better shoulders to stand on.

Posted by dddave | Report as abusive
 

Are we going to be expected to blame Bush for the next 20 years of increased debt and deficit spending too?

Or will we eventually maybe find that it’s possible to blame the people doing the spending now as well that those who did the spending previously?

Wait, it’s probably racist to ask that question isn’t it?

Posted by Ertdfg | Report as abusive
 

So is this INCLUDING the massive spending or is this the RESULT of the massive spending planned? Because I’ve got a feeling it’s going to actually be anywhere from 10-100x worse than presented here.

Posted by Ilpalazzo | Report as abusive
 

Actually, the better scenario is door number 4. Americans choose somebody diametrically opposed the Obama.

Posted by Rick Caird | Report as abusive
 

Obama, wanting to ‘be fair’, will choose door #3. “The Professor” majored in ‘social issues’, not economics. It’s all about THE RICH and how they SCREW the poor. Mama said so.

Posted by GarandFan | Report as abusive
 

1. Obama is purposely destroying business, jobs, and the economy.

2. He has spent at 5 times the rate of Bush who was also terrible. So anybody whining about that is an idiot.

2. Every single one of our liabilities are unfunded and some are even bankrupt…

STOP SPENDING!!!!

Posted by DJ | Report as abusive
 

James has the correct diagnosis (barring another technological great leap, which he mentioned). Unfortunately, he has the wrong prescription. Government cannot “invest in basic research,” tax, or spend to create growth. When it does those things it gets in the way of the people–the private sector–who are the only producers of growth.

When government gets in the way of the productive class, it distorts market signals–government interference is like sludge in an engine. Door #3 requires government to cut taxes, cut spending, and cut regulations. That was Reagan’s answer to the Carter Malaise and it worked. It will work now too.

Posted by PAR | Report as abusive
 

James , a well written concise piece. I think you know the door Obama has picked already and are just being nice lest the left call you a racist, a tea bagger , spitter, or (as frank rich says) just a white man worried about losing his power.

We are headed off a public debt cliff that will demand higher taxes , higher interest rates which will kill the economy and risk taking…..perpetuating another re-distribution and reparation grab by the Obama and his democrat gang in congress. In this context I agree completely with Joe Y’s excellent comments.

Only solution in my view is to kick all democrats out of power in 2010 , in favor of fiscally conservative republicans and tea party candidates. Have to do this before the democrats create more uncertainty or intimidate the private sector as rat-face Waxman is doing now

Posted by william riker | Report as abusive
 

I do not foresee creative destruction from any sector or in aggregate providing enough growth to overcome the ever-accelerating non-creative destruction from governments at every level.

Posted by PR | Report as abusive
 

it seems to me that we live in an alternative reality right now. We constantly talk of recessions, debt, economies and other man made constructs that hamper our ability to survive. Meanwhile, the Sun is still shining brightly and the weather patterns are still moving in such a way that the earth is still able to produce plenty of the things necessary for survival ( oxygen, plant and animal life, water, etc.). I hope that one day our world will awaken so that we can actually focus on the important things like staying alive, as opposed to how much more stuff/things/wealth one can amass in comparison to their fellow man/woman.

This commentary contains a single statement that renders the rest of it irrelevant to real life: “Productivity has been surprisingly robust during the downturn, helping the overall economy (though not the labor market) weather the storm better than most expected”

Sir, are you serious? In our monetized society the labor market is the main way to survive as you cannot live without any access to some sort of money. The labor market is the life market; i am constantly perplexed as we constantly talk about the economy as if it’s some living being. the economy is just a system that people make relevant; were there no people to “work” there would be no economy, no productivity rates etc..smh, America, the land of thief and the home of the slave.

Posted by brandon | Report as abusive
 

Interesting -
No sensible person should attempt to predict what will happen in twenty years, or even in shorter periods. Such predictions must be viewed as a funny, intellectually challenging exercise at best.

Posted by yr2009 | Report as abusive
 

One half of the american gov. cries that we need to stay capitalistic and screams socialism all while saying we can’t spend anymore on anything. How can a president adhere to capitalistic ideas and choose growth without spending any more money or redistributing it. We want to hold on to the past, but change the future…these don’t mesh well. You don’t often get change without change. If we are willing to understand that change is necessary and we really will not be a leading country in manufacturing much longer and look to investing in our strengths instead of trying to reinforce our weaknesses we could easily create growth.

Posted by Jay | Report as abusive
 

Only when Americans choose door #3 and send Barack Obama back to Chicago or wherever he came from, will America recover its mojo.

Posted by EJM | Report as abusive
 

>>>No sensible person should attempt to predict what will happen in twenty years, or even in shorter periods. Such predictions must be viewed as a funny, intellectually challenging exercise at best.<<<

This is wisdom. Nobody knows w

Posted by redpoll | Report as abusive
 

What are the chances that Barry “Spread the Wealth Around” Obama will choose Door No. 3? Zilch, nada, nyet!

Posted by John in Chicago | Report as abusive
 

Jay: Just one comment – Huh? What needs to be changed in your estimation, and who’s going to pay for it? Someone other than you, I’m assuming.

Posted by Rob | Report as abusive
 

Joe Y
You are right on the money and I wish mre Americans share your insight.

Posted by Tom Swartz | Report as abusive
 

Any economic analysis that ignores the fact that the government has been taken over by people who despise private enterprise isn’t worth the paper it’s printed on.

I’ts as if an asteroid hit the earth, all of the cities are destroyed and some nerd in academia spits out a forecast for agricultural innovation.

Mr. Gordan is either a bubble-boy or he is an idiot.

Posted by proreason | Report as abusive
 

The likelihood that the Redistributor in Chief, a Communitarian who’s never met a tax he didn’t love and a business he didn’t loathe, is going to change course is NIL. Hopefully, there will be a tsunuami in November that will tie his hands and stop this incredible assault on the American economy.

Posted by Chad | Report as abusive
 

The American empire is dead; so sad

 

“Slashing the corporate tax rate” This is precisely why the U.S. budget deficit is so high. For years American corporations have been paying almost no taxes.

Posted by jeff | Report as abusive
 

Storyburn @ 5:56 p.m.,

Re “The American empire is dead; so sad”, I wouldn’t bet on it.

Obama is an unprecedented disaster, but all he’s doing is speeding the country faster than it was already heading toward bankruptcy.

Bankruptcy = no money.

No money = no stuff.

The leftist welfare state is unsustainable.

Obama isn’t presiding over the creation of The People’s Republic of America; he’s presiding over the collapse of the welfare state.

Bankrupt, the country will go into *survival mode*.

Survival mode *will not* include figuring out how to sustain the unsustainable programs that collapsed the economy to begin with.

Survival mode will be about surviving — including revamping the unsustainable programs to make them sustainable.

Unless most Americans somehow forget that all their lives they basically had their pick of jobs, drove new cars, wore nice clothes and had nice things (including doctors’ offices that weren’t run like the DMV), and so accept living in a decaying country *ruled* by statists who take away more and more of their rights every day, this mess *will* be reversed.

Yes, we may indeed have to go bankrupt first, for the vast majority of Americans to fully wake up — but they *will* wake up.

And when they do, they will listen to leaders like Paul Ryan, not Barack Obama.

So quit worrying about the end of the USA, because it ain’t happening.

Instead, as soon-to-be Congressman Allen West would say, fix your bayonets and get ready to charge.

Posted by JR Dogman | Report as abusive
 

Hugo Chavez’ leftist, fascist, dictator. That’s Obama. That’s what we’ve elected. There’s no way Obama will settle for two terms. He will President for Life. Chavez is showing Obama how it’s done.

Posted by russ in nc | Report as abusive
 

For this guy it is all about redistribution….He has made his statements, he has taken actions….they are all in the same vein….he is a liberal…very liberal….comes from a culture that holds great disdain for “white” Americans seeing them as having an unfair advantage….And now many white people, including myself are terrified of a socialistic country controlled by a demographic that sees us as their former jailers….

Obama is not the problem or the solution…but may very well be the enabler of a authoritarian morphing that will leave white people feeling like former black south africans, and black people saying where is all the abundance the white people had before Obama??

Posted by tgtg | Report as abusive
 

The signature characteristics of practicing Marxist states are total state control, resulting in operational inefficiency and institutional corruption.

Regardless of what you think of Comrade Obama’s ideological pedigree, total state control, operational inefficiency, and institutional corruption are the goals of the Obama administration. Leftists celebrate Obama’s programs, Conservatives deplore those programs.

The ultimate stage of Marx’s “scientific” social and economic evolution is the stateless society achieved after the state has “withered away”. If the state is to wither away, institutions must be destroyed: banks, GM, Chrysler, personal wealth, and individual values.

Practicing Marxist states have never approached the withering away phase, becoming instead more demanding and controlling as inefficiency and corruption ruined the prospects for Marx’s dubious goals.

The only question now is, “How long will the American people tolerate the unprecedented inefficiency and corruption of the American Marxist experiment?”

Posted by Santiago | Report as abusive
 

The key to productivity increases is high technology, and the key to hi tech is R&D. And the private sector only spends on R&D when they’ve got the captial…from high profits and sales growth. With Obama/Pelosi absolutely COMMITTED to sucking huge amounts of capital out of the private sector, I think we’re doomed. Instead of robust GDP growth and low unemployment, we’re going to get a bunch of sucky govt programs that don’t work along with poor GDP growth and permanently high levels of unemployment.

Posted by JohnR | Report as abusive
 

These type of predictions are always a lot of fun and make for interesting cocktail conversation, but the dismal science is notoriously weak at predicting anything beyond a quarter out.

As others have pointed out here, however, it’s become evident that this Administration just has no understanding of what government needs to do to encourage the type of business climate that leads to innovation and increased productivity. Indeed, there is virtually no major economic sector where it doesn’t see a significant role for government in the form of higher taxes, control and regulation. It is a classic approach for slower growth and unintended consequences that when finally addressed take a long time to heal.

Posted by Peter | Report as abusive
 

I have seen a lot of pessimism and bad talk about President Obama on Health Care, the general handling of the Economy and foreign policy. I tell you all who are so much crtical about him that you are in for a surprise. I did not agree with the pessimism last year when the financial crisis was on its peak and I do not belief the learned friend (the Economists) for their predictions for the next decade/s. What I have noticed is that all of a sudden Mr. Obama is to blame for every wrong which is was and is being attended to in USA. But you easily forget what Mr. Bush has caused with his blindly applied autocratic leadership. He caused for you a very expensive war in Irak and he brought in the stimilus packages which caused the US so much. The latest stimilus package by Mr. Obama was really necessary after the economic blunders caused by the Republican Party of your country. And to not miss out that when you sneeze we hear/feel it all over the world. Therefore, rather give your backing to your current President and do not predict a black picture which is never going to be. At least for my memory being so evident of past predictions by the learned Economists, I can recall that most of their predictions are usually lame (if it comes to prosperous times to come), but when it comes to doom and bloom they allways are “certain”. You will rarely get an Economist who will predict a future with golden horizon lines to expect. My prediction is that the US will have an average growth of 2.8% to 3.5 % for the next 5 years, and thereafter you will get between 3.2% and 3.8% average for the 5 years to follow. The signs are there. Back your President and give him the necessary support. Do not try to discredit him, whilst he has not even reached half of his term of reign. Thank you.

Posted by Ben Namibia | Report as abusive
 

Stagnant wages are a large part due to the arbitrage of labor across the Pacific to cheaper Asian factories. Government regulations are diddling on the margins of employment – the basic fact is that for an increasing number of trades and professions, the wages are about 10% of those in the West, and unless that changes, the wages will be stuck in a downward trend.

If an American makes $20/hr, and an Asian makes $2/hr, where are those factory jobs going to go? I guarantee government regulations surrounding workers benefits aren’t going to hurt or help with this basic fact.

Nice article. Too bad it isn’t relevant. Maybe it will get someone’s favorite politician elected, but it sure won’t “fix” the issue, if there is a “fix” at all.

Posted by Bromo | Report as abusive
 

It’s a mistake to look at short term fluctuations in productivity and assume long term trends. Productivity is soaring now because that’s the norm in recent recessions.

And an average 1.7% productivity long run growth rate is respectable given our overall productivity level (7th in the OECD in 2007 behind Luxembourg, Ireland, Norway, Belgium, Netherlands and France) and the principle of convergence. In fact that’s exactly the average rate of US productivity growth from 1970 through 2008. The rate of growth since the mid-1990s is the anomaly.

Most of our growth in the 19th and 20th centuries was due to population growth. In my opinion we have more than enough people already.

Posted by Mark A. Sadowski | Report as abusive
 

@JEFF – You were the only left-leaning comment here but wow, you were so ignorant I had to call you out on it. The American corporate tax rate is already than most of the g20 countries you idiot.

And even if we taxed corporations more (say at the rate of top income earners at 40%) it would barely contribute to decreasing the deficit.

Its no wonder the liberal poster states, such as california, are all deeply in debt with no way out. Liberal ignorance always astounds me when they always trumpet their supposed intellectual superiority.

Posted by Diogenes | Report as abusive
 

@Ben Namibia – Your statement is a huge exaggeration. The main source of low-skilled manufacturing jobs is increased productivity NOT foreign competition. And outsourcing those jobs when its economical tends to generate more than the difference in terms of american jobs because american companies can employ workers in a position that adds more value in the chain than simple manufacturing (the average chinese manufacturer literally makes like a penny on the dollar).

Again, if you are unskilled, expect your life to be full of volatility. The main lesson of this recession and the next 3 years of stagnant growth is that the American economy and people cannot take shortcuts. The source of a rising standard of living is productivity growth: that is going and teaching yourself advanced skills so that you can better increase the salary you can command and at the same time actually earn it (versus the gambling mentality we’ve seen the last 10 years).

Posted by Diogenes | Report as abusive
 

For most of us, our economic well being is better defined by growth in real median income than growth in average per capita income. To understand the difference between median and average, look at it this way: two average Americans and Bill Gates have an “average” net worth in the billions of dollars. But the median net worth is much lower, in the 10′s or 100′s of thousands of dollars. This median number better represents most people.

I think increasing real median incomes is a better goal than overall income growth–let’s focus on how to help the middle class. When one looks at the real median income of “Joe six pack,” i.e. a full time white male worker, one finds that Joe’s real median income has not changed significantly since 1973. The growth in real median family incomes that continued until 2000 was primarily the result of increasing female work force participation from 45% to 60% and, to a lesser extent, reducing wage discrimination for women and minorities. Joe’s income has been stagnant for the last 37 years.

Overall economic growth is essential to getting Joe a raise. But as the last 37 years have shown, overall economic growth alone is not sufficient–it does not guarantee Joe a raise.

Posted by Karl from Chicago | Report as abusive
 

I think I get it. If I owe more on my credit card than I get in salary, it will drastically effect my productivity. If more and more of my pay goes toward paying my debt, its less I have for myself and my family…and less I have to help my neighbors and my country.

One would think the current administration would get that too. Apparently not. But what the heck…I can’t last more than 40 more years and don’t really care what happens after that…until I look into the eyes of my kids and try to explain why my generation, lead by idiots in Washington, are rapidly taking away their chance for a good life.

Posted by Tim | Report as abusive
 

@Diogenes,
You wrote:
“You were the only left-leaning comment here but wow, you were so ignorant I had to call you out on it. The American corporate tax rate is already than most of the g20 countries you idiot.”

Actually Jeff may be guilty of exagerating but you on the other hand are absolutely wrong. Government and independent researchers have long pointed out that the top statutory corporate tax rate is an incomplete measure at best of the burden of corporate taxes. It does not take into account the generous depreciation rules, exemptions, deductions, and credits (some of which are sometimes termed “loopholes”) that corporations may be eligible for. Those special provisions lower corporations’ effective tax rate, or the share of their profits they actually pay in taxes.

The U.S. corporate tax burden is smaller than average for developed countries. Corporations in 19 of the member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent ranking us 15th out of the 19 (see Table 5.3):

http://www.ustreas.gov/press/releases/re ports/07230%20r.pdf

I’m not advocating we tax corporations at a higher rate but I do think corporate tax reform is long overdue.

Posted by Mark A. Sadowski | Report as abusive
 

The past decade has been notable for conservative unfunded increased entitlements and back to back tax cuts that have reduced taxes by 25% since 2000. After all, the conservative Republicans running the economy argued Reagan proved deficits don’t matter.

Reagan was the first president increase the debt burden in a time of peace, and to break the pattern of debt burden reduction by every president since the end of WWII, even in time of major wars (Korea and Vietnam).

Bush is the first president to cut taxes and go to war, arguing Reagan proved deficits don’t matter.

And conservatives promised the economy would be stronger than in the 90s after the tax cuts boosted growth and created more jobs than were created in the 90s.

And let’s be clear, taxes have been cut dramatically. In 2000, Federal taxes were more than 20% of GDP, but today they are less than 15% of GDP. The taxes per person are definitely lower today than in 2000.

So, the economy has been driven to its current state by tax cuts.

This isn’t the first time. The 20s were a time of Republican tax cuts, following the end of WWI, and an era of economic hardship for the majority, but riches for Wall Street. The 30s were a decade of double digit growth in output and job creation, and a decade of Democratic tax hike after tax hike.

In 1981, the Reagan tax cuts passed by Republicans drove unemployment well over 10%, until he relented and approved tax hikes starting in late 1982, marking a decade when Democrats passed almost entirely tax hikes, with significant economic and job growth resulting.

But that ended with the 21st century which was marked by the fruits of the Republican 1997 tax cut: the NASDAQ bubble. Those 1997 tax cuts promoted the idea that pump and dump was true capitalism, and that the road to wealth was pouring money into every single NASDAQ IPO no matter how idiotic the idea was. With the election of Bush, the idea was pump and dump real estate speculation created wealth, and taxes were cut to promote that road to real wealth. The financial collapse is the fruit of those tax cuts.

Meanwhile, bridges have been neglected and failed, the electric grid become less and less robust leading to power failures and shortages, and water systems springing leaks that swallow up cars.

But hey, fixing our failing infrastructure and moving to an economy where we reduce our imports is too costly because we can’t afford to hire millions of Americans to do the work that would entail because the US can’t afford it when so many people are on extended unemployment benefits. To be able to afford the high welfare costs of high unemployment, the conservatives argue, we need to slash payrolls, especially of government workers helping the unemployed survive the high unemployment market.

After all, taxes just haven’t been cut enough, according to conservatives, because the tax cuts so far have only reduced economic growth and destroyed wealth.

Posted by mulp | Report as abusive
 

Let’s hope that another transforming technology comes along that will enable productivity gains and counter this trend.

 

I believe it is clear at this point that Obama has decided to take a #2 all over America.

Posted by Paul Thiel | Report as abusive
 

The difference between the past and now is that we now have a president with ‘spread the wealth’ mentality and a strong desire to tax anything that moves. Until we ‘cap and tax’ foolish policies like that as opposed to carbon we are in for a long period of slow-to-No growth. Let’s hope this was just a one time 4 year mistake.

Posted by paul | Report as abusive
 

Mercantilism is a long story. Adam Smith wrote his book the Wealth of Nations to refute the idea. It’s an idea that refuses to die. The Progressives have latched on to it. You can recognize it in the thirties in the writings of Wesley C. Mitchell, Johm Maurice Clark. These are the Institutionalists like Thorstein Veblen who cribbed some ideas from St. Simon. An expert elite is supposed to know how to do things. John Kenneth Galbraith is another. His ideas are carried on by Robert P. Reich, Lester Thurow, Andrea Tyson, and JKG”s son James K. Galbraith. To make a long story short read James’ latest book “The Predator State”. He wants to reinstitute planning, wage and price controls, income redistribution. This is not just President Obama; its the central ideology of the Democratic Party. They are busy putting it into place. Free market people don’t think that this will be good for the economy going forward.

Posted by Bernie | Report as abusive
 

Come on November!

Posted by LoachDriver | Report as abusive
 

Interesting definitely, but we’ll see how the 20 year average ultimately plays out. I am extremely hard pressed to believe the argument that productivity will see diminishing returns – an entire generation which is far more productive at the productivity-enhancing technology of the 90s & 00s is entering the workforce. These people will be capable of – and expected to be capable of – far more than the older colleagues in the same role. And even beyond this specific generational moment of young and wired in the workplace, to say that most of the productivity gains for our technology will bring us diminishing returns? That doesn’t pass the smell test – it is effectively to pronounce innovation dead (yes not exactly but effectively). Thinking about gross inefficiencies in my company alone (major global law firm) I pretty much refuse to believe the biggest increases in productivity are behind us – that just makes no sense, from a practical point of view. Maybe the leafy view from Evanston is implicating the good professors prediction.

Posted by g50 | Report as abusive
 

Russ in NC,

Demographics may be destiny, but we still outnumber all these other groups combined and if we get our kind into public office perhaps the brakes can be put on runaway immigration.

Posted by LoachDriver | Report as abusive
 

My biggest concern is the class warfare that is being echoed from our current administration. I am the CEO of a very successful computer company. I am tired of uneducated people telling me how companies like mine are the root cause of the current economic situation. I fear my safety……is this America? In the near future, am I any more secure to be a successful businessman or an unemployed unskilled worker? If the economy continues it’s down word slide I hate to say I’ll be the scape goat. What do I do? Where do I go? These are scary times.

Posted by Tom | Report as abusive
 

No trend will last for 40 years. World War III will change everything, and in very unpredictable ways.

Posted by Andrew P | Report as abusive
 

This state of affairs are known to many Americans and in general public.
Because of economic slow down, no clear cut policy on major issues,last two years banks financial crisis, not much appreciated exports from America, more expenditure on Iraq/Afghans areas, some misconception on Mr.Obama!s new health care proposals made his downward rating on his policies,actions etc.,from Americans.
Mr.Obama wants to do more welfare measures to native Americans and to others as early as possible.
Those who attracts by his or speeches may be short lived.
America was in very pretty positions and enjoying their wealth for many centuries.
Now, other nations had started moving towards forward journey and getting favorable results from now and then.
If government wants to build more cash reserve, more expenditure on running and sustaining economic and social growth, creating more infrastructure, then, our college economics speaks in real terms.
There is no other ways, only to get more revenue by regulations, more and more exported industries formation,more productive work, increase their standard of income,then, some taxes to be levied and can be collected from many high,upper classes.
Still,some years to go and to find what happens on American soil by Mr.Obama and his team.
These findings may be a search type for any corrections and bring his ratings to upwards.,

Posted by mdspatsy | Report as abusive
 

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