02/29/2024

Slow Economic Growth: It’s the Regulations, Stupid!

It’s the economy, stupid!, was the slogan devised for Bill Clinton by his campaign manager James Carville in the 1992 presidential race. The slogan kept the campaign focused on the financial and employment anxieties of Americans who had just gone through what, in the wake of the Great Recession, we would call a minor hiccup. New York Times economics columnist Eduardo Porter wonders why the post-Great Recession economy has been so sluggish, and especially why productivity growth has faltered. Porter cites the dire forecast of Lakshman Achuthan of the Economic Cycle Research Institute who argues that anemic labor force growth of half a percentage point plus productivity growth of half a percentage point “will push the economy ahead at the anemic pace of just 1 percent a year.”

Porter, a convinced Keynesian, urges the government to print money, ah, “prepare for another bout of fiscal stimulus” to boost consumer demand as a counter for recessionary forces should they emerge. He cites Harvard economist Larry Summers as suggesting that the right policies could boost economic growth half of percentage point. It’s not nothing, but it’s far from the 3.4 percent per year growth rates the U.S. experienced in the 1990s. Is there anything that can be done that might boost economic growth to something like the boom years of the 1990s?

Porter does hit upon the right idea when he notes, “Eliminating onerous regulations — things like occupational licenses that restrict eligibility for a variety of jobs and overly tight zoning laws that prevent the building of new homes — would improve economic efficiency and equity.” Yes, a thousand times, yes!

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