Wednesday, June 24, 2015

4% growth

I wrote last week on the simple factual question of whether and how often the US has experienced 4% real GDP growth in the past.

The deeper question, is that growth possible again? I answered yes, it's surely possible as a matter of economics. 

A few have asked me "why do so many of your colleagues disagree?" It's a question I hate. It's hard enough to understand the economy, I don't pretend to understand how others respond to media inquiries. And I don't like the invitation to squabble in public. 

It has taken me some time to reflect on it, though, and I think I have a useful answer. I think we actually agree.

As I read through the many economists' quotes in the media, I don't think there is in fact substantial disagreement on the economic question -- is it economically possible for the U.S. to grow at 4% for a decade or more? Their caution is political. They don't think that any of the announced candidates (at least with a prayer of being elected) will advocate, let alone get enacted, a set of policies sufficiently radical to raise growth that much. 

This is a sensible position. When I answer the question, is 4% growth for a decade economically possible, my answer is whether the most extreme pro-growth policies would yield at least that result. A  short list:

  • The tax code is thoroughly reformed to do nothing but raise revenue with minimal distortion -- a uniform consumption tax and no income, corporate, estate etc. taxes, or deductions.
  • A dramatic regulatory reform. For example 
    • Simple equity-financed banking in place of Dodd-Frank. 
    • Private health-status insurance (with, if needed, on-budget voucher subsidies) in place of Obamacare. 
    • An end to the mess of energy subsidies and interference. No more fuel economy standards, HOV lanes, Tesla tax credits, windmill subsidies, and so on and so on. (If you want to control carbon, a uniform carbon tax and nothing else.) 
    • Many agencies cease to exist. 
    • No more endless waits for regulatory decisions. 
  • No more witch hunts for multibillion dollar settlements.
  • Thorough overhaul of social programs to remove disincentives. Most help comes via on-budget vouchers.
  • No more agricultural subsidies.
  • No more subsidies, period. Fannie and Freddie closed down.  
  • Unilateral free trade. 
  • Essentially open immigration -- anyone can work.  
  • Much labor law rolled back. Uber drivers can be contractors, thank you. Most occupational licenses removed -- anyone can work.  
  • Drug legalization.
  • School vouchers. 
  • And so on. Essentially, every single action and policy is re-oriented toward growth. 
This program removes a lot of level inefficiencies. 10% increase in level over 10 years is 1% more growth per year. Labor force participation increases. The labor force itself grows. We get a spurt of productivity growth just from greater efficiency without needing big investments. And then innovation and new businesses, investment, technology kicks in.

There would be a lot of lawyer, accountant, lobbyist, compliance officer, and regulator unemployment. Well, Uber needs drivers.

Politically, this is free-market libertarian nirvana.

I think my fellow economists might agree that 4% growth for a decade is possible with such a program. In fact, it we can likely get to 4% with much less than all of these policies. They might complain about inequality or other objectives.  But most of all, they might say it's unlikely that the new President and Congress will enact anything like such a program.

That's a very reasonable view. I also agree that typical proposals -- a  small reduction in corporate rates, a twiddle here a tweak there, the typical small promise to improve regulation -- will not have one tenth the needed effect.

But, dear colleagues, they asked us about economic possibility, not our guess about political probability. Let's answer the question they asked us.  It would be better to say: "Sure, 4% growth is economically possible. But I don't think any politician will advocate the policies necessary to produce it."  If we were to say that more often, rather than give up at the outset, we just might get such policies and politicians.

You never know what's "politically feasible." In 1955, civil rights was "politically infeasible." In 2005 gay marriage was "politically infeasible." Politics sticks in the mud for 100 years and then changes faster than we imagine.

I think there actually are quite a few politicians who would do some of the radical things that need to be done. They need to hear from us that it could work, as a matter of economics, and let them handle the politics.

We will soon see a first test: Can any candidate show up in Iowa, and say "Ladies and Gentlemen, government subsidized corn ethanol is a rotten idea." Then, can they say something vaguely coherent on immigration and trade.  The campaign season is young. Let's not prejudge them. 

Growth is just too important to give up on so easily. Sclerotic growth is the economic issue of our time. Economists should be cheering any policy agenda focused on growth.  If you think the policies needed to give us growth are hard, and out of the current political mainstream, that's ever more reason to keep reminding people that growth is possible and needs big changes, not to confuse "it's unlikely they'll do it" with "it's economically impossible."

Update: Response to Noah Smith's comment on this post  here 


  1. In astrophysical terms I would say that's "impossible within an order of magnitude".

  2. I didn't think I would find myself agreeing with you on so much, but I do. I find your suggestions liberal on the social side (open borders, drug legalization), libertarian on the economic side (no subsidies, getting rid of all kind of licensing).
    I would however be more “radical” on one thing and more “progressive” on another:
    1. I think prices should move very very freely. Get rid of obligatory long-term labor and rent contracts. I think monetary policy works, but it works for essentially the wrong reason: which is that prices move slowly. I think fast moving prices would lower unemployment and mitigate recessions. So I would add to the mix to strongly encourage inflation-linked prices. My ideal labor market would work as follows: inflation-linked wages with very short contracts (maybe a year).
    2. On the “progressive” side I would still add: something resembling either a negative tax code or a minimum basic income. I think poor people should be helped, but mainly by non-distorting cash transfers.
    -- econ phd student in europe

    1. Open borders and drug legalization are closer to the libertarian position. Although a number of American liberals espouse these principles calling them liberal positions is merely guilt by association.

      Unless, of course, you're talking about liberals in Australia and the Continent who are more like American conservatives. In that case you can more easily conflate liberal positions with libertarian principles, although IMHO those types of liberals (conservatives) believe that the government should guarantee freedom whereas libertarians want everyone, government included, off their backs.

      So if you call Prof Cochrane's positions liberal it makes a world of difference if you are referring to liberal liberals or conservative liberals, and also consider that his positions are possibly neither and are actually libertarian.

      “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

      (The above was the basis for the majority opinion of the SCOTUS ruling on King v Burwell)

    2. I think Dr. Cochrane already included your #2 in the form of all the vouchers he mentions in his blog post.

      Also, when you say, "Get rid of obligatory long-term labor and rent contracts," can you give me an example of what you mean? I think I might agree with you, but I'm not sure.

    3. Original poster here:

      Nice discussion.

      @JB McMunn: You’re right though that I conflated the European liberal with the Americal libertarian here a bit. However, what I meant to say was that many “progressives” are very open borders and drug legalization. I could therefore see many of them agreeing with the social policies proposed by Cochrane.

      @Ryan Long: I agree with Cochrane that transfers should be minimally distorting, but I meant to add in my #2 that I think that cash transfers to poor people should be a significant amount and not just whatever the amount of potential savings from other social policies are at the moment, sent as a check. As for your second question: the European country I’m from make employment contracts permanent. I know this leads off track, but this is bothering me. I do think it should be easier to fire people.

      If you would boil down what I would prescribe I’d say: take people’s permanent jobs and rent controlled apartments, but instead give them a check.

  3. John,

    "The tax code is thoroughly reformed to do nothing but raise revenue with minimal distortion -- a uniform consumption tax and no income, corporate, estate etc. taxes, or deductions."

    Cockamamie, the tax policy with the fewest economist distortions is a totally voluntary system of taxation. Any other form of taxations represents a legal imposition whether it be an income or consumption tax.

    Please stop providing half measure answers.

    1. Whether it imposes a legal imposition is utterly irrelevant. It's the distortions that matter.

      Saying you want "voluntary" taxes is either a joke or evidence that you live in Colorado and have been taking too much advantage of drug legalization. There are anarchic places with no government at all, should you be so interested. Somalia has lovely weather.

    2. Anonymous,

      No it is not utterly irrelevant. Any coercive force (and legal impositions are one such force) is a distortion in every sense of the word.

      I am not saying that I want voluntary taxes. I am saying that all forms of taxation (other than voluntary) are by their very nature distortionary. If John wants a non-distortionary form of taxation, then it is Somalia that he (not I) should seek.

      And yes, the U. S. Treasury department does collect donations to reduce the federal debt here:

      Which is more distortionary - a system of legally binding tax codes or a system of donations?

  4. I agree with you about subsidies for farming and energy and the use of corn to make ethanol. I agree with you about carbon taxes as a revenue source.

    I think there is an belief underlying many of your proposals that the basic economic problem is that the poor have too much money and rich have too little.

    I believe much less radical policies will give us 2 to 3% per year growth and I would not support turning the economy upside down chasing after after one more point of growth.

    1. I violently disagree. The belief underlying my proposals is that the poor are being skinned alive by cronyist regulations, tax laws, subsidies, and laws, that deny them opportunities.

      I want growth because in the course of history growth and freedom rather than attempted redistribution in statist, regulated, stagnant economies has been the only engine that ever really helped poor people.

      Just in today's news -- food truck bans, uber driving regulations, occupational licenses for nail salon workers, teachers unions, zoning laws restricting housing supply, GM food bans...all hurting the poor. Yes, let's turn the economy upside down!

    2. Professor Cochrane - I disagree. Some of your proposals seems to be motivated by an economic aestheticism rather than any real expectation of material improvement. For example, de-regulating nail salon workers would marginally improve the lot of wanna be workers in that industry, slightly drive down prices and drive down wages of existing workers. The overall effect on wages of low paid workers might be positive or negative but would be trivial in the scheme of things.

      Much of our growth has been driven by, or made possible by, public policies like public education, public infrastructure, public r&d and public health. I agree that free-ish markets are more efficient. I agree that we should not subsidize farmers, we should not mandate ethanol and we should not subsidize homeowners to build on storm swept coast lines. We should be identifying and eliminating wrong headed programs like the raisin price supports recently in SCOTUS. But, I also believe that government intervention can help deal with information problems, externalities, transaction costs, hold outs, and free riders.

      Your biggest proposal is to shift the tax burden from income to consumption. A pretty clear shift from high to low income people (the Canadian HST/GST is enormously unpopular). Given that capital is abundant and cheap at the moment it is hard to believe that reducing taxes on capital income would drive a great flowering of increased savings and productive investment. Any new incremental investment not already being undertaken would probably be one with a very low expected pay off.

  5. You will never get to a sustained 4% growth rate over a ten year period with those measures. As I mentioned on your previous post, you need to change the composition of our economy -- in other words, get more domestic production on-shore not only for fiscal and monetary measures to have a greater effect, but also to get a good synergy among the sectors in the private sector.

    We have an economy that has gotten out of balance, with huge deficits in our trade balance that then draws on "excess" accumulations from Asia to flow back into our economy to finance our deficits and way of life. This is not sustainable for a heathly world economy that should be promoting development and lifting more people out of poverty.

  6. We can probably get to 4% with just open immigration. All of the rest would have much smaller effects you say, many would have substantially negative short-run effects as the economy adjusts to the change, and a few just aren't likely to have noticeable effects on GDP (School vouchers? come on).

  7. I believe the primary motivation for taxes and spending today is to crudely address income inequality. As long as that remains the primary motivation....We're going to be stuck spraying in the mud.

  8. Ok, nice, I agree with most, if not all, of the dreams and wishes. Please, please, abolish this tax code, please, lower the bureaucratic burden - please, abolish Obamacare (fat chance, Supreme Court just upheld it today, again) - please, eliminate all subidies, etc etc.
    All very nice - and yes, 4% or perhaps more, is economically feasible.
    Couple of things: you say, "Economists should be cheering any policy agenda focused on growth."...I would be careful with this statement - you refine it in the beginning of the blog post. I say that, because for Paul Krugman or for Bradford DeLong or Lord Skidelsky to be "focused on growth" means something very different than for John Cochrane. They all think that growth should be (government) demand driven, not supply side driven (which is basically your suggestion in the beginning).
    My second comment is, you say: "Can any candidate show up in Iowa, and say "Ladies and Gentlemen, government subsidized corn ethanol is a rotten idea." " Yes, one candidate could and actually did so: Ted Cruz, a couple of months ago, in a meeting in Iowa. He did not say they are a rotten idea, but he did say that he was against the Renewable Fuel Standards - that was early March, in Iowa. All other Republican candidates supported the RFSs.

  9. "Many agencies cease to exist."

    So which federal agencies would President Cochrane abolish on day one? [insert Rick Perry joke here]

    1. If the Bureau of Economic Analysis and the Bureau of Labor Statistics are eliminated - both are groups of accountants and lawyers that John wants to put in the unemployment line - then who is left to measure GDP let alone real GDP?

      The economy is growing at a real rate of 4% because King Jeb says it is? Sounds like you have traded in democracy with it's associated bureaucracies for imperialism.

    2. There are a few Federal efforts I would happily expand. Data collection and publication are among them. BLS and BEA are safe with me. The justice system needs more money too.

      Your second sentence is nonsense

    3. The justice system is happily accepting donations here:

      Do a search online. Most major police departments have foundations set up to receive contributions.

      I asked once and I'll ask again - why do you believe that a consumption tax creates the fewest economic distortions when it should be apparent that voluntary payment raises revenue with no economic distortion at all.

      If we can agree that voluntary payment is the best system in terms of economic freedom, then we can discuss why it is not used.

    4. Frank, are you the only person in the world that doesn't know why voluntary taxes aren't used?

    5. Perhaps you can explain it? But remember John's statement:

      "The tax code is thoroughly reformed to do nothing but raise revenue with minimal distortion -- a uniform consumption tax and no income, corporate, estate etc. taxes, or deductions."

      We are looking for a tax code that raises revenue with the fewest distortions.

    6. "If we can agree that voluntary payment is the best system in terms of economic freedom, then we can discuss why it is not used."

      I will agree just so we can move on to the second part: this won't work unless you completely change human nature to something more like a Shmoo.

    7. JB,

      "this won't work"

      It won't work to accomplish what goal? As John described it, the objective of tax policy is to obtain revenue while introducing the fewest economic distortions.

      We are not trying to maximize tax revenue (Laffer Curve like), we are trying to maximize economic freedom of choice.

      It seems to me that a voluntary system of taxes accomplishes exactly what John proposes in terms of tax policy objective.

    8. Frank, you are confusing "economic freedom" with "economic distortion". The criteria above is "minimum distortions", not "maximum economic freedom."

      A 50% tax on happiness (if we could figure out what happiness is and how to measure it) would have zero economic distortions. A voluntary tax has even more economic distortions than what we have today.

    9. Anonymous,

      I really don't see the difference. Any coercive force whether it be taxes, legal restrictions, or otherwise is a distortion. Given the choice between paying taxes and buying a new car, I would prefer to buy the new car, but I am legally obligated (on threat of incarceration) to pay taxes.

  10. I wrote last week on the simple factual question of whether and how often the US has experienced 4% real GDP growth in the past.

  11. In the 1920s the Fed Govt spending was less than 5% of GDP and I think Defense spending (the War Dept) was around 5% of the Fed budget. The Real GDP per capita of the 1960s was about 45% better than the 1920s -- 35% for the '60s and 24% for the '20s. The Fed Govt in the 1920s ran balanced budgets; the 1960s saw one deficit after another with Fed Govt spending in the range of 17% to 20% of GDP. The result: in 1960 the National Debt to GDP was 70% and by 1969 it was reduced to 40% -- that's what good growth will do. As I said above and in a previous post on the same topic, good leadership in Govt and the private sector and get the right composition to makeup the national economy and things will hum -- there was no Socialism, no Central Planning, and no appointment of an Economy Czar.

    1. " The result: in 1960 the National Debt to GDP was 70% and by 1969 it was reduced to 40% -- that's what good growth will do."

      In the 1960s we were reaping the benefits of the technical progress of the 1950s (much of it paid for by the government or done through monopolies like AT&T) and the benefits of the construction of the inter-state highway system. Combine that with inflation and we get a drop in the share of debt to GDP.

      There was sure as heck "central planning" in the 1950s and 60s and it was done mostly at the Pentagon (with some help from NASA) who did the planning and contracted the research and the work out to the private sector. For example, the Boeing 707 was designed as a military project for an air to air tanker.

    2. " The result: in 1960 the National Debt to GDP was 70% and by 1969 it was reduced to 40% -- that's what good growth will do."

      How about the part 2 years later when Nixon had to close the gold window? Is profligate spending on unproductive endeavors like war and massive social programs "good growth"?

  12. Wouldn't the solution to boosting per capita growth be simply kicking out poor children of poor people, rather than open immigration?

  13. John, can you describe what concrete evidence would convince you that your hypotheses presented here are wrong? What are some specific examples of future economic data that would convince you to abandon them? Thanks.

  14. John, would you extend your proposed uniform consumption tax to the delusion industry (which currently enjoys a tax exempt status)?

  15. I think you need to run for president. Failing that, I like Marco Rubio. (I don't trust Rand Paul on foreign policy.)

  16. Cntrl + F key and 'patents' yields no hits. Once again Cochrane, like most economists, is clueless about the key role technology plays in growth (the famous Solow equation has exogenous growth as the sole driver, the rest of the things Cochrane talks about will only raise growth to the technology-driven long term rate). Cochrane is implicitly pro-trade secret, but it's well known this does not drive 'breakthrough' inventions. In fact, concrete was 'lost' to future generations when the Roman empire fell (it was reinvented in the medieval ages) and one speculative theory places both flight (via a hang glider in ancient China) and electroplating (in ancient Persia) as 'lost technologies' due to trade secret, not to mention Greek Fire (a still unknown formulae) as well as 'iron / stone ware ceramics' in Korea. And bronze casting was lost in 3000 BC Thailand and rediscovered in the Middle East later.

    A reformed patent system, where inventors get rewarded (at the individual level as well as the corporate level) with a significant government prize fund would go a long way towards obtaining 4%/yr real growth. A lot more than opening US borders to manual workers (since most intellectuals already can get into the USA if they want).

  17. Wow, no chance these proposals would create anything like growth.

    Entirely missing is any focus on investment, especially public investment. The sad fact remains for you and your ilk is that public ROI vastly exceeds private ROI. And then it's the expansion of capital assets, including thhings like public education, that leads to growth.

    A set of nostrums together with "and then good stuff happens" ain't gonna do it.

    1. Not all public ROI is so great. California, in the middle of a drought, desperately needing public investment in water, is instead building a high speed train from Fresno to Modesto, at about twice the cost of such trains in...France.

      I' all for roads, bridges, internet, and our public buildings not looking like wrecks.

      "your ilk" nearly got you deleted.

    2. California does not need public investmetn in water as much as it needs market pricing of water. I doubt if there is much cost benefit in building additional infrastructure to allow Californians to continue to grow cotton makes sense. Let the cotton be grown in Mississippi.

    3. yes, it's all trains in California.


    4. Btw, I should say, a very reasonable post on Greece previously.


    5. "Let the cotton be grown in Mississippi."

      Or Brazil or Pakistan or Uzbekistan or ...

  18. Prof. Cochrane is correct. Unfortunately, the only place to govern like this will be by building islands in the sea.

    1. There's always that one way mission to Mars (AKA "nirvana"). (c:

    2. You don't need an island. I suspect that you could build and operate a large cruise ship in international waters for a lower cost per person than Silicon Valley rents.

  19. Sustained growth of 4% is a tall order.

    Here are the numbers. Of the 68 years since 1947, 29 of them saw real GDP growth in excess of 4%. That doesn't seem so bad.

    However, if we take five year averages, then the numbers are much smaller, 17 of 68; and of these, only five (2 Reagan, 3 Clinton) are after 1980.

    Population growth in the US typically averages about 1.0% per year. It is better when the economy is strong, less when the economy is weak. (Population, in turns out, is a dependent variable.) In the better Clinton years, population growth reached 1.3%. In 2014, is was running a paltry 0.7%, which is quite poor by historical standards.

    Growth of labor productivity averaged 2.2% from 1981 to 2007. It has been in the hopper since 2007, averaging 0.4%, with a partial recovery to 1.6% in 2014.

    Now, how do we get to 4.0% GDP growth? We could get there with historically average productivity growth and 1.8% population growth. For the record, 1.3% is the population growth high since 1980.

    Pop growth of 1.8% equals about 5.9 million people per year. For 2015, Census estimates US population growth at 2.2 million, of which 800,000 would be legal and illegal immigrants. To achieve growth of 5.9 million, we would need to increase immigration to 4.3 million, fivefold over current anticipated levels for the year. Not so easy, and a big change socially. And of course, we would have to keep up the pace year after year to hold a 4% growth rate at the traditional rate of productivity increases. Could we find 4 million Chinese, Indians and Mexicans wanting to move to the US every year? Probably. Could we tolerate the influx from a social and political perspective. I doubt it.

    Could we increase productivity growth? Maybe. First, it's important to note that productivity growth since the Great Recession has been absolutely awful, and it is recovering now. Second, recoveries from oil shocks (with 2014 a redux of 1986) generally implies faster growing productivity. So that should help to the extent the shale oil sector has the potential to continue to grow. During both the best of the Reagan and Clinton years, we saw productivity growth around 3%. Smaller government, lower taxes, and less spending might get us there, if not indefinitely, then for a period of five years or so.

    Finally, it should be noted that the US economy has been severely depressed for seven years now. We could see the much-delayed rebound coming up, with growth over or near 4% over some stretches of the next few years. This has little to do with policy, and everything to do with the end of the Great Recession and the Fourth Oil Shock.

    For any given year, 4.0% GDP growth may be a reasonable goal. However, over longer stretches of five years or more, holding that pace is likely to prove highly challenging.

    1. The question was not raising the long run growth rate, as understood by growth theory The question is a decade of 4%. For that, you can benefit from many "level" effects of reduced inefficiencies.

    2. I find it rather unimaginative to extrapolate into the future with a ruler and some arithmetic. I have the impression that had some commenters been born in 1900 they would have probably predicted the invention of the steam powered pocket watch.

      The inference that something can't happen because it hasn't happened shouldn't even be entertained.

    3. I don't know, John. At 3.5%, I'm a buyer. At 4%, there's no such ten year period since the 1960s, and a lot of that was still Post WWII rebound.

      There are some inefficiencies, but to get to 4%, you'd have to a take a big swing at Medicare/Aid, probably at Disability and Welfare (and these will be low marginal productivity folks as a rule), and tolerate really heavy immigration.

      But I still have doubts, principally owing to our aging population.

      If we had national accounts (how exactly is it that a $17 trillion economy lacks a balance sheet which every mom-and-pop store has?)--if we had a national balance sheet, three items would catch our attention.

      First, infrastructure spending--a lot of it--does not increase GDP. It prevents GDP from falling. That is, if I repave a road, GDP increases with the actual paving, but not with the improved asset. I have created a new transportation capability, I've only prevented an existing one from declining.

      This is also true of healthcare spending. Most of our healthcare dollars go to the elderly. We are not making them healthier, we are preventing them from becoming less healthy, ergo, again, we are preventing GDP from falling, rather than increasing it.

      Finally, as we start to top out on higher education, we are losing incumbent capability as the educated retire. So like healthcare spending, after al while, higher education spending is essentially going to maintain our level of knowledge and skill, rather than increasing that base.

      All of these trends are turning about now. If we had a balance sheet, and we started looking at GDP net of depreciate and amortization, we'd see that gross GDP is probably beginning to deviate materially from net GDP. Now, over time, gross and net GDP will converge, even without explicit accounting for DD&A. Be that as it may, I suspect that GDP is over-stated, if you accounted for on-going erosion of human health and knowledge capital, as well as depreciation of physical infrastructure.

      So, sign me up for 3.5%; but 4.0% for ten years--that's a bridge too far for me.

    4. And if you want to see how I would maximize growth, read my comments on Greece at Econbrowser:

      or a more structured presentation using the US as an example, here on my blog:

      It's as radical a liberal (classically liberal) program as you are likely to see.

    5. You're right, JB. There are limits to using a ruler, that is, to relying on historical precedent.

      But I think the question of growth rate is to an extent misguided. To me, the issue is that of creating demand for growth. If you assess the actual behavior of politicians, you will see that they try to maximize political acceptability subject to a budget constraint. (How much money will politicians spend? Well, all of it.) Politicians, in my experience, do not attempt to maximize sustainable GDP growth, which I think John might argue should be the principal function of government. (I would argue that, in any event.)

      So if you want to maximize sustainable GDP growth, you need to create the incentive to produce it. If we had the incentives in place, then we wouldn't really have to worry much about whether 4.0% is feasible or not. We could have some confidence that politicians would want to maximize growth, whatever the underlying potential might be.

      A venture capitalist friend of mine once said, "You know, before you do anything, you have to do something first." If we want to even approach 4% growth, the issue is not that of policies, but incentives. That's what we have to address first.

  20. Interesting points and I tend to agree with most of them. I would say the greatest issue of our time is the question of how to have a productive society where individuals feel they can contribute and make a living (as opposed to headline growth, which may not necessarily be consistent with this goal), especially when there is the phenomenon of winner take all which will be accentuated exponentially with artificial intelligence and even more advanced robotics. Of course, sclerotic growth does not help, but I do wonder if even with good headline growth, there is a risk that individuals feel they cannot contribute to society (because they have no relative value-add). By the way, which witch hunt re billion dollar settlements are you referring to? Thanks!

  21. "National security" spending is now a $1 trillion dollar a year parasitic monkey on the economy is back. (Think DoD, VA, debt, black budget).

    Every classical economist will tell you military spending is parasitic. Surely, if we want more-rapid economic growth, this would be a place to look for a radical cutting.

  22. Steven Isn't GDP growth a function of productivity growth and labor force growth - not productivity growth and population growth? I realize they will be similar in the long run. However, right now, with labor force participation rates relatively low (even adjusting for more "seniors, etc"), there might be more room to grow over, say, a 10 year horizon.

    1. GDP growth would be a function of employment (that is, employed members of the labor force) and labor productivity growth. So, yes, you are correct, but if we're talking immigration, we usually refer to it in terms of population, not employed immigrants, so that's why I used population even though it's not technically the correct term.

      If you're interesting in greater detail on demographics, here's my related file. It has population growth (organic; legal, illegal immigration); labor force participation by age; unemployment rates; disability; cross country comparisons--it's a pretty comprehensive file, I think, for anyone wanting to write on US demographic issues.

      And here's a post on oil and demographics:

      And a cross country comparison of employment to population ratios:

  23. I think your proposals are interesting and I agree with much of what you say. However, I question whether we should set a high rate of GDP growth as our primary objective. I think many economists fetishize the GDP figure without analyzing what the number represents.

  24. I agree with you that growth is important and should not be written off because it seems impossible. We should set be ambitious and set lofty goals, why settle for less? I'm sure a century ago people would have thought that many of the accomplishments we have achieved today were impossible. The Solow growth model puts our long term growth at 3%. To me it seems that this is just a long term moving average. In the longer term couldn't the moving average possibly move up to 4%? Thanks

  25. Long-time reader, first-time commenter. While I am a liberal, you'll be happy to know I agree with almost every proposal you've outlined here. I have only two objections to your suggestions. The first concerns the replacement of our tax code with a consumption tax. While I agree that this is the most efficient way to create government revenue, compared to our current tax code it's likely to be quite regressive. Given what I believe is a somewhat inevitable march towards greater inequality (driven by technology and globalization), I think such a tax would have to be coupled with some sort of guaranteed basic income or enlarged EITC. Second, while I agree that regulations dealing with externalities (both positive and negative) are best replaced with a combination of taxes and subsidies, you do not address regulations that are meant to correct information asymmetries. While there are many examples I could choose from, I believe healthcare is one of the best. You seem to have great faith in the power of the market in healthcare, but tell me this: do you, Mr. Cochrane, have any idea if that extra blood test the doctor ordered is necessary? Do you have any benchmark to gauge its value to you ($300 vs. $500)? Do you have any readily available means to compare blood test prices or blood test quality? Many regulations that exist today are meant to address information asymmetries like this, and are not easily replaced by taxes or subsidies. There are many other examples (mortgage brokers signing people without basic English literacy to reverse-amortizing ARMs 7 years ago) but you seem to have a willful disregard for the presence of such asymmetries in US markets.

    1. Continuing with your health care example: Can you even find out how much you are going to be charged for that blood test? How about getting an estimate for the cost of hip replacement surgery. Can you find out how much your copay will be after your insurance pays its part? Can you find out if that guy wearing scrubs coming up to your bed is going to charge you several hundred or several thousand dollars for a few minutes of time that you did not request? Apart from the information, can you tell the ambulance driver not to take you to that more expensive hospital but instead take you to the nearer less expensive hospital? Will he listen to you? How does competition work when there is only one provider available? Why did Hammurabi feel it was necessary to define acceptable weights and measures and then appoint inspectors to go to the market place to see if people were using the correct weights?

  26. Tried several times to write a longer post, but Google made me sign in 3 times and I believe deleted all of my previous attempts. Short version: I'm a liberal and I agree with almost everything you've written here. Two objections: how do you deal with the regressive nature of a consumption tax without a guaranteed basic income or enlarged EITC? Second: how do you replace regulations that deal not with externalities but with information asymmetry? See the entire healthcare market for example.

  27. Steven thanks for responding and the references to the useful data sources.

  28. Just curious: do you have ballpark estimates of how much each of those measures would contribute towards achieving greater growth? Or maybe just how they would roughly rank?

  29. Can someone please fill me in on the objection to HOV lanes.

  30. When you say, "No more witch hunts for multibillion dollar settlements.," does that mean we can start putting the crooks in jail? Because there are actual people in these corporations who made the decision to commit felonies and other people who knowingly, willingly, committed felonious acts in response to their bosses' decision to commit crimes. None of them are currently punished by the multibillion dollar settlements (Jamie Dimon even got a raise).


Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.