Five ways to improve economic growth
By Ira Stoll | July 6, 2016, 6:36 EDT
Later this month, the Commerce Department will unveil its estimate of how much the American economy grew in the second quarter of 2016.
If the recent pattern holds, the number will be disappointing. Last week the government announced that the economy grew at an annual rate of 1.1 percent in the first quarter of 2016, a slowdown from the 1.4 percent annual rate from the fourth quarter of 2015. These numbers are “real” rates, that is, after the government makes its adjustments for inflation.
Never mind the debates, serious though they are, about accurately measuring inflation or whether Gross Domestic Product properly measures things like internal household production or happiness. Comparing these numbers to those of past years makes clear that they are subpar. Tepid would be a kind way of putting it; pathetic would be another way to describe it.
Stack these Obama one percent growth numbers against, say, the 8.3 percent real annualized growth of President Kennedy’s fourth quarter of 1961; or the 8 percent in Kennedy’s third quarter of 1963, or the 10.2 percent growth rates recorded by the American economy in 1965 and 1966; or the 9.4 percent of President Reagan’s second quarter of 1983, or the 7.8 percent of the second quarter of 2000 under President Clinton, and the Obama economy looks anemic.
One can quarrel over whether presidents have much control over these numbers or whether they are at the mercy of more powerful forces such as the business cycle, geopolitical developments — war and peace — or demographics.
But the benefits for America of even improvements in economic growth are so great that most politicians — and probably most voters who have thought about it, too — have concluded it’s worth at least trying to make a difference on the margins.
The good news at the moment for politicians hoping to improve on the sad growth record of the Obama years is that there is low-hanging fruit to be gathered. That is, there are pro-growth policies where there’s significant bipartisan consensus on the need and desirability of action, but where, for whatever reason, change has so far been slow.
Here are five such areas where changes in laws could trigger significant improvements in economic growth:
Occupational licensing. This has long been an area of interest for the heroic libertarian litigators at the Institute for Justice. Recently, the Obama administration, Hillary Clinton, and even the New York Times have gotten interested in the idea that unnecessarily burdensome state licensing requirements are preventing people from working at their full potential. Reducing, eliminating, or harmonizing these requirements might improve things.
Build taller. The economic powerhouses of America have included some regions, like Silicon Valley and San Francisco, New York, Los Angeles, and Boston, that have in some ways been victims of their own success, as demand to live there has outstripped housing supply limited by zoning, historic preservation, and in some cases rent control and “affordable housing” laws that limit construction. The resulting increase in housing costs subjects low- or middle-income workers in these areas to punishingly long commutes or keeps them from moving there altogether. Allowing taller buildings would allow more people to join in the high-productivity, high-earning urban boom.
Lower corporate tax rates. Lowering America’s corporate tax rates, which are high by international standards, would prevent American companies from fleeing offshore. It might also lure back to America some of the profits that American companies now have stashed overseas.
Simplify the tax code. If businesses and individuals spent less time gaming or just trying to understand and comply with the ridiculously complex tax code, they might have more time to devote to more productive pursuits. A tax simplification could also help solve the problem of high marginal tax rates for middle-to-low income Americans, a problem caused by the phase-out of various benefits and subsidies — like Obamacare and the earned income tax credit — that often are built into the tax code itself.
Increase legal immigration. More people mean more growth. I’d be for both a pro-natalist (or at the very least neutral) family policy and a policy to increase all kinds of immigration. But if the politics of those two are too complicated or difficult, at least you’d think that the politicians might agree to welcome more foreigners with advanced degrees — engineers, doctors, scientists — to America or to allow more of them to stay here easily, particularly if they got their degrees or training at American institutions.
Without action on these fronts, look forward to more quarters of one percent growth. Even with such action, there’s no guarantee of a return to 7 percent, 8 percent, 9 percent or 10 percent growth. But the chances would be greater.