Jewish World Review June 30, 2000 /27 Sivan, 5760
The lessons of a US growth rate running at levels once thought impossible for a developed economy
http://www.jewishworldreview.com -- ANY DAY NOW Washington's Congressional Budget Office is due to announce a growth forecast so rosy it would have been unthinkable as recently as 18 months ago. Word has it that the number crunchers who serve Congress are predicting that in the next decade the US will enjoy average annual real growth of 3.2 per cent.
If the figure is accurate, it represents an upward adjustment of a full half a percentage point from the 2.7 per cent figure the CBO was predicting in January. Even if the CBO comes in below 3.2 per cent, its numbers generally are likely to be higher than those put out by the White House's Office of Management and Budget on June 26. And the OMB forecast was already very rosy: it predicted an average 3 per cent growth rate over the coming decade.
Details aside, the impact of the upward shift in the baseline number is clear. Washington, long a growth pessimist, is coming around to private sector forecasters' more generous evaluation of the future of the US economy.
Much of the coverage of the shift has focused on its effect on politics in 2000. And it is true that both Congress and the White House are already moving - with alacrity - to take advantage of the new billions in tax revenues that may be available this year. The White House is asking for prescription drug coverage for senior citizens, the Congress seeking deeper tax reductions.
As for the presidential campaign, George W. Bush's team are crowing about the news. They point out, with some accuracy, that the emerging bounty undermines Vice-President Al Gore's long standing charge that Mr Bush's plans to cut taxes and privatise social security are risky deficit-producing "schemes". For its part, the Gore campaign will note, also accurately, that the trillion dollar-plus in tax revenues the higher growth can bring makes eliminating the federal debt - a Gore project - a more realistic possibility.
Still, the trend here goes beyond seasonal politics or government revenues to the question of how developed nations think of themselves.
For many years Washington, along with other big capitals, believed that high growth numbers were a property exclusive to developing nations. A Korea, a Singapore, or an Ireland might grow fast. But big First World capitals, the conventional thinking held, had to content themselves with slower growth. Indeed, a specific trade-off was often articulated. Slow growth was the price that the developed world had to pay for luxurious social welfare programs and a stable economy.
"In recent years, a 2.25 per cent or 2.5 per cent figure was the Washington consensus," recalls Michael Boskin, chairman of the Council of Economic Advisers under President George Bush.
The thesis seemed to be borne out by the sluggish numbers that often characterised developed economies in the 1970s, 1980s, and early 1990s. US economic data, and to be specific the bellwether "nonfarm multifactor productivity" number, seemed to suggest that faster non-inflationary growth might be an impossibility. And when US growth rates did start to move up in the mid-1990s, many observers dismissed the figures as aberrations.
The new Washington consensus on robust growth stands the old wisdom on its head. An America that grows faster than 3 per cent annually will be a very different place from one that grows at a rate just a percentage point more slowly. Observers tend to focus on the good that strong economies bring to the public sector - government solvency, well-funded government programmes. But if the new forecasts prove anywhere near accurate, many of the most important benefits will come on the private sector side, in the form of a higher standard of living.
Dr Boskin, who is currently advising Governor Bush's campaign, says the US's
new growth experience contains a special lesson for Europe. "That a more
flexible, dynamic economy, even a highly developed one, can grow rapidly and
provide employment opportunities broadly. But that is going to require reducing
the burden of taxation and regulation". Or, at least, require bringing them down to
the somewhat lower levels that obtain in the United
JWR contributor Amity Shlaes is a columnist for Financial Times
. Her latest book is
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