This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published March 15, 2012 on Forbes.com.
From 1947 to 2007, the U.S. economy averaged real growth of 3.2% a year. At that rate, our GDP would double every 22 years. It is that sustained, long term economic growth that made the United States into the world’s dominant superpower.
Last year, U.S. real economic growth was a paltry 1.7%. The current quarter will probably not be much better. Historically, the deeper the recession, the stronger the recovery. That is because the U.S. economy has always rebounded back to the long term economic growth trend. But not this time. Because the recovery has been so weak and so far below historical standards, at current trends we will be 20% below the long term trend line for the U.S. economy permanently, meaning a 20% lower standard of living than if we caught back up to that long term trend line through faster than trend growth in the interim.
Yet, if we go back into recession next year, our standard of living will fall farther and farther behind the U.S. economy’s long term trend. That is fundamental change, but not that we can believe in, or that gives us hope.
But another recession next year is exactly what I expect under current policies, as I have argued here in previous columns. With the Obamacare taxes going into effect next year, and the expiration of the Bush tax cuts, which President Obama refuses to renew for singles making over $200,000 a year, and couples making over $250,000, in other words, the nation’s job creators, small businesses, and investors, the top tax rates of virtually every major federal tax will soar. The only important exception is the federal corporate tax rate, which is already virtually the highest in the industrialized world, with no relief in sight. Combine that with Obama’s building regulatory costs reaching a crescendo next year, and the Fed quite possibly in contractionary mode after the election to shortcircuit inflation, and the result will be another whopping recession, driving American living standards back down even further behind the long term trend line of traditional American prosperity.
In stark contrast, the American economy catching up to its long term economic growth trend line would mean the economy booming over the next 10 years with average annual real growth of 4.4%, and then continuing on after that at 3.2% real annual growth. Ten years of 4.4% real growth would leave the American standard of living, and GDP, over 50% higher than today. That is the boom this economy has in it naturally, with the right pro-growth policies just getting the government out of the way, and freeing the economy to grow.
Steve Moore provided a glimpse of what that boom would involve in his weekend Wall Street Journal article of March 10-11, “What North Dakota Could Teach California.” He writes regarding the oil and gas boomtown of Williston, North Dakota, “New homes are popping up at breakneck speed. McDonald’s is offering workers $36 an hour plus a signing bonus.” He adds that “North Dakota led the nation in job and income growth in 2011” with “the nation’s lowest unemployment rate, at 3.3%.” As a result, “North Dakota is also flush with cash and a budget reserve of at least $1 billion, out of a $3.5 billion biennial budget. The state has already cut income taxes, and it is building thousands of miles of ‘shovel ready’ infrastructure projects – roads, bridges, railroads, pipelines–without almost any of Uncle Sam’s funny money.”
Moore explains, “All this is thanks to the technological leap forward represented by hydraulic fracking, a process that allows drillers to blast through underground shale rock and pump out oil and natural gas.” He elaborates on the new vistas opened by this technological breakthrough,
“In 1995, the U.S. Geological Survey estimated 150 million ‘technically recoverable barrels of oil’ from the Bakken Shale [the root of the North Dakota boom]. In April 2008 that number was up to about four billion barrels, and in 2010 geologists…put it at eight billion. This week, given the discovery of a lower shelf of oil, they announced 24 billion barrels. Current technology allows for the extraction of only about 6% of the oil trapped one or two miles below the earth’s surface, so as the technology advances recoverable oil could eventually exceed 500 billion barrels.”
The political leader who best understands this today is Newt Gingrich, who recently wrote that because of this new breakthrough technology, which combines offshore horizontal drilling techniques with fracking for onshore shale, “the number of recoverable barrels of oil estimated to be in the United States, waiting to be produced [is 1.44 trillion]. That’s about the amount of oil the entire world has consumed since the first well was drilled before the Civil War. In addition, we have an estimated 2.744 quadrillion (a 15 digit number) cubic feet of natural gas.”
Gingrich notes the estimate of the royalties to the federal government from such oil and gas development at $18 trillion over the next generation. That is enough, he further notes, to pay off the current entire national debt of $15.5 trillion, without increased taxes.
White House spokesman Jay Carney called Gingrich a liar for suggesting that opening up such oil supplies would drive down the price of gasoline below $2.50 a gallon. But note how the burgeoning supplies of natural gas from fracking drove down the price of that fuel by 70% over the past couple of years. In fact, the price of gasoline was $1.83 when Obama entered office. With the above explosion in supply, it can go lower than that.
But the even bigger point is that this new fracking and drilling technology is just the tip of the iceberg of the new wonders on the horizon from our rapidly developing science. Also in the March 10-11 weekend Wall Street Journal was an interview with physicist Michio Kaku. Kaku predicted, “Every 18 months, computer power doubles, so in eight years, a microchip will cost only a penny. Instead of one chip inside a desk top, we’ll have millions of chips in all of our possessions: furniture, cars, appliances, clothes. Chips will be so ubiquitious that we won’t say the word ‘computer.'”
Kaku continued, “To comprehend the world we’re entering, consider another word that will disappear soon: ‘tumor.’ We will have DNA chips inside our toilet, which will sample some of our blood and urine and tell us if we have cancer maybe 10 years before a tumor forms.” He adds, “When you need to see a doctor, you’ll talk to a wall in your home, and an animated artificially intelligent doctor will appear. You’ll scan your body with a hand-held MRI machine, the ‘Robodoc’ will analyze the results, and you’ll receive a diagnosis that is 99% accurate.”
Kaku further projected, “In this ‘augmented reality,’…the Internet will be in your contact lens. You will blink, and you will go online. That will change everything.” Kaku concludes, “If you could meet your grandkids as elderly citizens in the year 2100, you would view them as being, basically, Greek gods.”
In the last century, 1900 to 2000, Stephen Moore and Julian L. Simon note in their underappreciated work, It’s Getting Better All the Time: 100 Greatest Trends of the Last 100 Years, real per capita GDP grew by nearly 7 times, meaning the American standard of living grew by that much as well. The authors explain,
“It is hard for us to imagine, for example, that in 1900 less than one in five homes had running water, flush toilets, a vacuum cleaner, or gas or electric heat. As of 1950 fewer than 20 percent of homes had air conditioning, a dishwasher, or a microwave oven. Today between 80 and 100 percent of American homes have all of these modern conveniences.
Indeed, in 1900 only 2% of homes enjoyed electricity. As Cox and Alm note further in their insightful Myths of Rich and Poor, “Homes aren’t just larger. They’re also much more likely to be equipped with central air conditioning, decks and patios, swimming pools, hot tubs, ceiling fans, and built in kitchen appliances. Fewer than half of the homes built in 1970 had two or more bathrooms; by 1997, 9 out of 10 did.”
Such economic growth has produced dramatic improvements in personal health as well. Throughout most of human history, a typical lifespan was 25 to 30 years, as Moore and Simon report. But “from the mid-18th century to today, life spans in the advanced countries jumped from less than 30 years to about 75 years.” Average life expectancy in the U.S. has grown by more than 50% since 1900. Infant mortality declined from 1 in 10 back then to 1 in 150 today. Children under 15 are at least 10 times less likely to die, as one in four did during the 19th century, with their death rate reduced by 95%. The maternal death rate from pregnancy and childbirth was also 100 times greater back then than today.
Moore and Simon report, “Just three infectious diseases – tuberculosis, pneumonia, and diarrhea – accounted for almost half of all deaths in 1900.” Today, we have virtually eliminated or drastically reduced these and other scourges of infectious disease that have killed or crippled billions throughout human history, such as typhoid fever, cholera, typhus, plague, smallpox, diphtheria, polio, influenza, bronchitis, whooping cough, malaria, and others. Besides the advances in the development and application of modern health sciences, this has resulted from the drastic reduction in filthy and unsanitary living conditions that economic growth has made possible as well. More recently, great progress is being made against heart disease and cancer.
Also greatly contributing to the well-being of working people, the middle class, and the poor in America has been the dramatically declining cost of food resulting from economic growth and soaring productivity in agriculture. As Moore and Simon report, “Americans devoted almost 50 percent of their incomes to putting food on the table in the early 1900s compared with 10 percent in the late 1900s.” While most of human history has involved a struggle against starvation, today in America the battle is against obesity, even more so among the poor. Moore and Simon quote Robert Rector of the Heritage Foundation, “The average consumption of protein, minerals, and vitamins is virtually the same for poor and middle income children, and in most cases is well above recommended norms for all children. Most poor children today are in fact overnourished.” That cited data comes from the U.S. Census Bureau. As a result, poor children in America today “grow up to be about 1 inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.”
That has resulted from a U.S. agricultural sector that required 75% of all American workers in 1800, 40% in 1900, and just 2.5% today, to “grow more than enough food for the entire nation and then enough to make the United States the world’s breadbasket.” Indeed, today, “The United States feeds three times as many people with one-third as many total farmers on one-third less farmland than in 1900,” in the process producing “almost 25 percent of the world’s food.”
Moreover, it is economic growth that has provided the resources enabling us to dramatically reduce pollution and improve the environment, without trashing our standard of living. Moore and Simon write that at the beginning of the last century,
“Industrial cities typically were enveloped in clouds of black soot and smoke. At this stage of the industrial revolution, factories belched poisons into the air–and this was proudly regarded as a sign of prosperity and progress. Streets were smelly and garbage-filled before the era of modern sewage systems and plumbing.”
The point of recounting this progress in the last century is that with exploding modern science, economic growth in the next century can be even more rapid, perhaps twice as fast, or more. Such booming economic growth would produce surging revenues that would make balancing the budget so much more feasible. Surging GDP would reduce the national debt as a percent of GDP relatively quickly, particularly with balanced budgets not adding any further to the debt.
Sustained, rapid economic growth is also the ultimate solution to poverty. It was economic growth in the last century that reduced U.S. poverty from roughly 50% in 1900, and 30% in 1950, to 12.1% in 1969. Among blacks, poverty was reduced in the 20th century from 3 in 4 to 1 in 4 through economic growth. Child poverty of 40% in the early 1950s was also reduced by half. It was economic growth that made the elimination of child labor possible as well.
The living standards of the poor in America today are equivalent to the living standards of the middle class 40 years ago, if not the middle class in Europe today. With sustained vigorous economic growth, 40 years from now the lowest income Americans will live better than the middle class of today.
If real compensation growth for the poor can be sustained at just 2% a year, after just 20 years their real incomes will increase by 50%, and after 40 years their incomes will more than double. If pro-growth economic policies could raise that real compensation growth to 3% a year, after just 20 years their real incomes would double, and after 40 years it would triple. That is the most effective anti-poverty program possible.
With sustained, robust, economic growth, maintaining the most powerful military in the world, and thereby ensuring our nation’s security and national defense, will require a smaller and smaller percentage of GDP over time. That security itself will promote capital investment and economic growth in America. The booming economy will produce new technological marvels that will make our defenses all the more advanced. With the economy rapidly advancing, there will be more than enough funds for education. There will also be more than enough to clean up and maintain a healthy environment. And that booming economy will produce the resources and the technological marvels to enable the American people to maintain the choice of the best and most advanced health care possible.
This is all why there is nothing more important than maximizing economic growth. And if the static thinking Marxists and their fellow travelers get out of the way, this is the future of virtually boundless prosperity the American people will enjoy, with our grandchildren in 2100 seeming the equivalent of Greek gods by our standards today.
And this is why economic growth and prosperity for all is the most cool, hip vision possible. If the Republican candidates can project that vision this year, they will deliver Obama and the Democrats a more sweeping, shocking, shellacking than in 2010. For since the election of 1800, and even before that in the inspiration for the American Revolution itself, the American people have always voted and fought for economic growth and prosperity.