The Fed made it official this week: The Obama economy is stuck in low gear. Well, the Fed didn’t put it exactly like that, but that is certainly an apt description of the Obama economy. The Fed is anticipating that “the economy’s growth potential might be as low as 2.1% in the long-run, the latest in a string of downward revisions in recent years. That gloomier long-run growth outlook could help explain why the central bank is producing a lower long-run interest rate forecast of 3.75%.”
It is not just the Fed. “[G]rowth in 2014 probably won’t top last year’s lackluster performance, the IMF said. The Washington-based organization foresees the economy growing a modest 2 percent in 2014, below its previous estimate of 2.7 percent. That would be nearly identical to the 1.9 percent growth in 2013. The IMF blames the lingering aftermath of the brutal winter and a sluggish recovery in home sales. Years of disappointing growth mean the economy might not reach full employment — many economists say that is when the unemployment rate is 5 to 5.5 percent — for three more years.”
The odd thing is that the president doesn’t talk about growth. He talks about spending more government money. He talks about the rich “paying their fair share.” But it almost as if “growth” is a non-factor, not his responsibility and nothing that might affect basic policy choices.
It is peculiar, to say the least, insofar as there are a plethora of things the administration could be doing — tax reform, energy development, immigration reform and sane regulatory policy. In his defense, the president desperately wants immigration reform, but it is a sliver of the GOP House (and right-wing opinion) that fails to recognize the growth effects of responsible immigration reform. But on everything else, the president for ideological reasons is trying to move toward anti-growth policies, although he doesn’t talk in those terms. On taxes, he won’t bring the corporate tax rate into alignment with global competitors, flatten and rationalize the code nor encourage repatriation of corporate profits without a tax hike. On energy development. . . . well, you know billionaire Democratic donor and environmental absolutist Tom Steyer’s views on the matter; nothing will be done. On regulation, one could hardly image the effort required to understand and comply with the tangle of laws, regulations and executive orders that confront small and large businesses alike – the Dodd-Frank legislation including the new Consumer Financial Protection Bureau, Obamacare regulations, the Obama Environmental Protection Agency edicts. (And those are only some of the new ones under this president. Existing federal, state and local laws must also be followed.) Is there any wonder the economy is in slow motion?
In October 2013 the Bipartisan Policy Center looked at the economic impact of immigration reform. Among the advantages: An additional 4.8 increase in GDP over 20 years, with a 2.8 percent in the first decade; an increase in residential housing construction of $68 billion per year and reduction of the deficit by $1.2 trillion over 20 years. Over 20 year,s wages would increase .5 percent. (The Congressional Budget Office provided some detail: Those without a high school diploma would experience an initial decrease in wages of .3 while other segments of the workforce would experience an uptick in wages. By 2033 all segments of the workforce would experience an increase in wages.) Of course other policies including an increase in the earned-income tax credit could boost earnings for those at the bottom of the wage scale.
Conversely, trying to deport (or induce “self-deportation”) of those here illegally would diminish the gross domestic produce by 5.7 percent over 20 years.
What is standing in the way of a pro-growth policy? Ideological devotion to anti-growth policies based on other priorities (e.g. income inequality, elimination of fossil fuels, exclusion of non-native-born Americans). Both Republicans and Democrats may talk about growth, but until they align rhetoric with policies, the GDP picture is unlikely to improve.