Missing in Action: Growth
Monday, September 17, 2012
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.
At the Republican convention, the size of the national debt received top billing—but it was headlined in isolation, when it should have been displayed in tandem with the size of the national economy. By contrast, the Democratic convention essentially ignored the debt. Although both parties gave honorable mention to economic growth, the Republicans’ top priority was to highlight the bad things their opponents have done to the debt, while the Democrats’ priority was the divide-and-conquer strategy of pointing out how much better off the middle class would be under their leadership.
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
At the Republican convention, the size of the national debt received top billing—but it was headlined in isolation, when it should have been displayed in tandem with the size of the national economy. By contrast, the Democratic convention essentially ignored the debt.
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.)
Nonetheless, at the Republican convention, much attention went to the “debt clock,” which was very effective at showing that the federal debt is very large and growing rapidly. Unfortunately, there was no “economy clock” alongside it to put things in perspective, by showing us the size and growth of the overall economy. But if such a clock had also been on display, we would have seen that the economy, too, is very large, and (most importantly) not growing rapidly enough.
When they unwisely exclude the “economy clock,” the Republicans effectively narrow the focus of the debate to the debt clock, thereby suppressing debate about the best of all possible solutions to our fiscal problems: Growing the economy at a sufficiently fast pace. When the economy grows faster than the debt, our fiscal condition improves, i.e., a large, rapidly growing economy turns a large, less rapidly growing debt into a smaller relative problem.
Ignoring the question of how best to enhance economic growth tends to constrain the political debate, counterproductively, to the question of how to “pay down the debt.” When the Republicans allow this to happen, they paint themselves into a corner. By choosing the debt clock as their centerpiece, instead of juxtaposing it against an economy clock, they force themselves into a narrow, negative scenario in which they have to define, then defend, spending cuts. The debt-clock focus makes for a confusing campaign theme at best, and a losing campaign strategy at worst.
The Democratic convention similarly failed to headline overall economic growth. Income inequality has typically been a higher-priority theme for Democrats than growth has been. The result for their convention was no debt clock, little to no mention of the debt, a few references to infrastructure-driven growth, divide-and-conquer tax hikes for the top category of taxpayers, and a speaking agenda dominated by inequality anecdotes and general appeals for moving the downtrodden middle class “forward, not back.”
The consequences of crowding economic growth out of the debate
If an economy clock had also been on display, we would have seen that the economy, too, is very large, and (most importantly) not growing rapidly enough.
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.
Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy. His website is www.optimist123.com.
FURTHER READING: Conover also writes “‘Top-Down’ vs. ‘Bottom-Up’,” “The New ‘Buffett Rule’ Everyone Is Ignoring,” and “Why Growth Is an Economic Grand Slam.” John A. Allison and John L. Chapman argue “It’s Time for Pro-Growth Monetary Reform.” Daron Acemoglu discusses “The Growth Imperative.” Daniel Hanson contributes “Debt Burdens Choke Growth.” Peter J. Wallison explains “Why the U.S. Doesn't Have the Debt Problems of the EU.”
Image by Dianna Ingram / Bergman Group