Is a slow-growth future inevitable for America? More than ever, that’s the conclusion of economists, and it's a recurring theme of some presidential candidates. The irony is that the U.S. economy has been leading the world for a century in terms of total GDP, income per capita, and entrepreneurial innovation.
This election, sadly, the Cassandras have a point. The past seven years have seen the weakest recovery in modern U.S. history, showcased by stagnant incomes and an illusion of low unemployment, while millions have given up on the labor force. Slow growth is not inevitable, but federal policy "defaults" are stuck in the wrong place. Capital markets are hamstrung by Dodd-Frank, health markets are hamstrung by the Affordable Care Act, and structural deficits are on autopilot toward a national debt crisis.
Instead of discussions about how to fix the mess, the populist-toned 2016 election is overflowing with proposals that will do even more damage. Senator Bernie Sanders handily won the last six Democratic caucuses advocating old-school socialism, while Republican frontrunner Donald Trump is calling for a 45 percent tariff on Chinese goods, a lurch toward autarky that would make 1930 protectionist members of Congress Reed Smoot and Willis Hawley blush.
Policy debates are intensely argued over half-percentage improvements to growth rates and whether theory, empirics, or experiments are the best guides to moving the needle. Why bother? Explaining policies to enhance long-term growth is a Sisyphean task, and voters are not in the mood. With an election like this one, it is probably more useful to explain the most destructive policies. Here are our top five.
1. Restrict Trade. Free exchange is the cornerstone of a growing country. The vast, unrestricted market among the fifty United States inspired the nations of Europe to create the European Union. If the next president is serious about destroying prosperity, (s)he will follow through on the empty rhetoric about "exporting jobs"—arguably the most economically ignorant, antigrowth phrase in public discourse. Raising tariffs will restrict imports, cause inflation, and deeply harm American consumers. Killing the Trans Pacific Partnership, alienating Canada over the Keystone pipeline, and curtailing legal immigration would be just a start.
2. Make Work Illegal. Of course, the president will call it "labor protections," but the effect will be to make it harder for employers to hire. Studies show that underprivileged teenagers who are denied a first job suffer lifelong consequences. Raising the minimum wage to $15 an hour will block pesky kids from getting their first job, but don't stop there. Exacerbate the labor distortions by adding health care, social, and other paternalistic obligations to shrink private demand for labor. In the United States today, over 30 percent of jobs require a government license; in the 1950s, only 5 percent did. This creeping need for permission to work hobbles entrepreneurs and keeps untold millions out of the labor force.
3. Tax People More Unequally. After bipartisan tax reform in 1986, the federal income tax code had three rates, with 28.5 percent the highest. Since then, special "credits" have mushroomed along with the variety and complexity of rates, surtaxes, and other gimmicks. Tax inequality so infuriates the public that even President Barack Obama, author of much of the new complexity, campaigned in 2012 on the need for a "Buffett Rule" to flatten the tax code. And while all other advanced economies are competing to lower their corporate taxes, the United States has not budged from 35 percent, leaving us with the highest corporate tax rate in the world. As a direct consequence, our companies are abandoning their headquarters by inversions and essentially fleeing to foreign domiciles. With another generation of insincere tax populism, Washington will establish a corporate no-go zone, foment open class warfare, and slow economic growth to zero.
4. Stop Innovation. In the name of saving jobs, the next president will stop harmful competition from new products and firms. Washington will continue to favor big banks and bail out old, established industries. Though research shows that breakthrough innovations (like the personal computer) tend to come from startups (like Apple and Dell), Washington will keep gumming up entrepreneurship with red tape. A generation ago, 1 in 6 companies were startups; today 1 in 12 are.
5. Increase Debt. With interest rates near zero, the federal government has been able to run trillion-dollar deficits during the Obama presidency without facing the consequences. Earlier this year, total debt outstanding rose above $19 trillion for the first time, exceeding GDP. Debt has more than doubled in the past decade, yet interest payments in 2015 were exactly the same as in 2006, because rates are artificially low. The Congressional Budget Office projects payments to "rise sharply" in the near future, tripling in nominal terms as interest rates normalize. The surest path to a slow-growth future is this kind of fiscal profligacy. Just call it investment, and nobody will notice until the pensions run dry.
The good news about this policy agenda—what really makes it different from others—is that it requires no sacrifices. No new laws. No action by Congress. If Washington just stays on course, we will reap the whirlwind without any additional effort, or thought, at all.
This op-ed appeared in The Weekly Standard on April 18, 2016
Glenn Hubbard is the dean of the Columbia Business School and former chairman of the president's Council of Economic Advisers. Tim Kane is a research fellow at Stanford University's Hoover Institution and has twice served as a senior economist on the Joint Economic Committee of the U.S. Congress. Together, they authored the book Balance: The Economics of Great Powers from Ancient Rome to Modern America.