â??There is not a reason in the world why we cannot grow at a rate of 4 percent a year.â?ť Thatâ??s what Jeb Bush said when he officially announced his presidential run in Miami last week. And right off the bat, most economists trashed the idea.
â??It canâ??t happen and itâ??s never happened.â?ť â??Productivity is too low.â?ť â??The labor force is growing too slowly.â?ť â??Secular stagnation.â?ť
They donâ??t call it the gloomy science for nothing.
But wait a minute. We have experienced relatively long periods of 4 percent or more economic growth. Following the Kennedy tax cuts, the economy averaged 5.2 percent yearly growth between 1963 and 1969. After the Reagan tax rates fully went into effect, alongside Paul Volckerâ??s conquering of inflation, the economy grew at 4.5 percent annually between 1982 and 1989. These were the â??seven fat years,â?ť so named by former Wall Street Journal editor Robert Bartley. And between 1994 and 1999, the Bill Clinton/Newt Gingrich economy increased 4.3 percent annually, after welfare reform, NAFTA trade, and cap-gains tax relief.
So weâ??ve got six-year, seven-year, and five-year periods — all in recent memory — when the American economy beat 4 percent. And for nearly all the post-World War II period, dating from 1947 to 2007 (before the meltdown), the U.S. economy actually grew at 3.4 percent annually. And 3.4 percent is not so far from 4 percent. Itâ??s maybe only a few pro-growth policy changes away. Why wouldnâ??t we try?
So Jeb Bushâ??s 4 percent target is both aspirational and doable. It sets an important policy marker for the coming election. The whole GOP should adopt the target. Let the skeptics scoff. Positive solutions are grounds for optimism. And Americans will respond favorably to this kind of optimistic leadership — which is sorely lacking today.
Now, the back story to the Jeb Bush 4 percent target starts in Dallas in 2010 at the George W. Bush Institute. Executive director James Glassman, a former undersecretary of state, was casting about for an economic agenda. And one of his board members, Jeb Bush, tossed out a centerpiece goal of 4 percent growth. It stuck.
Columnist and author Amity Shlaes (author of Coolidge and The Forgotten Man) was brought in by the institute to oversee a book called, naturally, The 4% Solution: Unleashing the Economic Growth America Needs. It was published in 2012.
â??That term unleash is very important,â?ť Jim Glassman told me, â??because it simply means unleash the economy from government constraints.â?ť Ironically, this past spring, a group of supply-siders — including Art Laffer, Steve Forbes, Steve Moore, and myself — founded the Committee to Unleash Prosperity. (I donâ??t think we remembered the original book title. Leave it as a coincidence.)
But the key theme here is our desperate need of a new batch of economic-growth policies. For nearly two decades we have grown at 2 percent yearly. Thatâ??s unacceptable.
Put supply-side tax reform at the center of a new growth agenda. Start with slashing the corporate tax, which falls most heavily on middle-class wage earners. Go to full cash expensing and a territorial system that would repatriate overseas profits. On the personal side, flatten the rates, broaden the base, and simplify the code. Make sure it pays more after-tax to work, invest, and take risks. Instead of raising taxes on capital, reduce or abolish investment taxes (which would contribute to a rebound in the soft productivity numbers).
But tax reform is not enough. We need pro-growth immigration reform to boost the lagging growth of the labor force. We need entitlement reform for welfare, food stamps, and disability, so that instead of paying people not to work, we incentivize people to rejoin the labor force.
Trade tariff reduction, now front and center in Washington, would also be important to a pro-growth agenda. Tariff cuts are tax cuts. They make businesses more competitive and provide more export markets. Meanwhile, consumers get the best-quality goods at the lowest prices anywhere.
Improving education with choice, charters, and vouchers is another much-needed pro-growth reform. So is ending Obamacare and replacing it with a privately driven, free-choice health-care system.
Finally, a better, more consistent, and more transparent monetary policy from the Fed that creates a reliable dollar would be a huge pro-growth reform.
Is 4 percent growth really possible? Sure it is. And it would help solve a lot of problems, including poverty, middle-class take-home pay, jobs, budget deficits, and on and on.
Iâ??m not endorsing Mr. Bush at this point. But I am endorsing his 4 percent solution. If decisive policies can unleash innovation and entrepreneurship, get the economy out from under the governmentâ??s shackles, and provide a spirit of optimism, then all things are possible.
The whole history of America tells me so. Donâ??t tell me it canâ??t be done.