Missing in Action: Growth
By Steve Connor @ The American (September 17, 2012)
Neither party denies that our growing debt is rapidly taking us in the wrong direction, but neither party is giving the best remedy—economic growth enhancement—the top billing it deserves.
In the economic policy debate, there are two elephants in the room: The size and growth of our national debt, and the size and growth of our national economy. They belong together; when we address one, we should address the other at the same time. Unfortunately, that hasn’t been happening.
Nonetheless, the size and growth of our overall economy deserves more attention than the debt, and more attention than the middle segment of our society’s income distribution. Why? Because the larger our overall economy, relative to the debt, the less of a debt problem we face, and the better off all income classes will be. Sufficient growth solves many problems, and that is why it deserves top billing in the policy debates. (This has been the subject of previous essays of mine, such as “What Does Fiscal Responsibility Mean?” and “The Debt Ceiling Distortion,” but the theme is worth repeating.)
One elephant: The growing national debt
The national debt is large and growing. During political campaigns, it always gets plenty of attention from the party trying to recapture the White House, but seldom gets much airtime from the incumbent party. For example, prior to the crash in 2008, candidate Obama pointed to the increase in the debt as a major failure of the Bush presidency. But four years later, the roles have been reversed. It is now the Republicans’ turn to draw everyone’s attention to the federal debt. As a result, the Republican convention in Tampa dutifully featured an in-our-face debt clock, while the Democrats’ convention in Charlotte dutifully ignored the subject.
That reversal is no surprise; it’s politics. “Debt” is a scary word, and “16 trillion” is a scary number. The Democrats are avoiding the subject of our $16 trillion federal debt for good reason: They want to retain the White House, and avoiding that issue is smart politics. Likewise, the Republicans want to recapture the White House; pressing the debt as an issue is smart politics for them.
The other elephant: Growing the national economy
Similar to the national debt, the national economy is also large and growing. But it was at best a secondary theme at both parties’ conventions. Economic growth received honorable mention in a few speeches, but got nowhere near the top billing it deserves. That’s too bad, because the biggest benefits of economic growth include its ability to offset any problems caused by the federal debt—even if the debt continues to grow and grow—as well as its ability to boost incomes in all classes, not just the middle class. John F. Kennedy said it succinctly: “A rising tide lifts all the boats.” As an example, President Obama submitted a budget in 2009 that forecasted a real growth rate that would climb to 4.2 percent by 2013; of course, that trajectory hasn’t panned out, but if it had, the deficit and debt would not be major issues today. (The current growth rate is less than half of that estimate, by the way, and that’s the main reason the deficit and debt are major issues.)
Although neither party denies that our growing debt is rapidly taking us in the wrong direction, neither party is giving the best remedy—economic growth enhancement—the attention it deserves. Why? Because short-term politics trumps long-term economics. Inequality anecdotes play better to the Democrats’ base; fear of debt plays better to the Republicans’ base. The Democrats’ focus on reducing inequality to correct perceived economic injustice crowds out the growth discussion. Likewise, the Republicans’ error of equating the debt “level” with the debt “burden” tends to narrow the debate to “cutting spending,” which also crowds out the growth discussion.
When growth is crowded out of the debate, its major benefit fades into our past. The presidencies of Kennedy, Reagan, and Clinton revealed the economic bonanza that growth can yield: A surprisingly large increase in federal tax receipts without the need for any increase in tax rates, and reduction or elimination of the burden of debt. Growth lifts all boats, and it deserves top billing in economic policy debates.