In recent posts I have shared my growing concerns that we may be entering a prolonged recession that could drag on for the next decade.
Well, I may have been too optimistic.
James Pethokoukis pointed to a paper in his blog today by economist Robert Gordon that makes the following economic forecast for the next two decades:
However, all is not lost. A twenty year economic funk is not inevitable. Remember that economists generally forecast forward from the current state as it now exists.
As Pethokoukis points out, we can change direction to hopefully head off what is now being forecast:
Well, I may have been too optimistic.
James Pethokoukis pointed to a paper in his blog today by economist Robert Gordon that makes the following economic forecast for the next two decades:
"The implied forecast 1.50 percent growth rate of per-capita real GDP falls far short of the historical achievement of 2.17 percent between 1929 and 2007 and represents the slowest growth of the measured American standard of living over any two-decade interval recorded since the inauguration of George Washington."If Gordon's forecast is correct, America could become the latest economic powerhouse to lapse into a prolonged period of stagnation. We may be faced with our own lost decades, just like Japan faced in the 1990s and beyond.
However, all is not lost. A twenty year economic funk is not inevitable. Remember that economists generally forecast forward from the current state as it now exists.
As Pethokoukis points out, we can change direction to hopefully head off what is now being forecast:
"America faced a similar turning point a generation ago. During the Jimmy Carter years, the Malthusian, Limits to Growth crowd argued that natural-resource constraints meant Americans would have to lower their economic expectations and accept economic stagnation -- or worse. Carter more or less accepted an end to American Exceptionalism, but the 1980 presidential election showed few of his countrymen did. They chose growth economics and the economy grew.Part of door #3 needs to be a shift in policy to help entrepreneurs. We cannot burden them by expecting them to pay for an ever expanding government with higher tax rates. And we should not regulate them into oblivion because of the past sins of corporate America.
"Now they face another choice. Preserve wealth, redistribute wealth or create wealth. Hopefully, President Barack Obama will choose door #3. Investing more in basic research (not just healthcare) would be a start, as would slashing the corporate tax rate. A new consumption tax would be better for growth, but only if it replaced the current wage and investment income taxes. Real entitlement reform would help avoid the Reinhart-Rogoff scenario. The choices made during the next few years could the difference between America in Decline or the American (21st) Century."
Jeff,
I wanted to comment on the last part of this article. As a college student (entrepreneurship major), I am scared of the immense tax burden that will be put upon us in the near future. I am appalled at the ignorance of economics that this administration has given. Do they not know that it is my generation of entrepreneurs that have nothing to lose and, will, therefore, take the risks necessary to bring us out of this recession? Why place the butt of all these taxes on us (especially the ones that become successful)?
A local radio station is hosting some very young entrepreneurs next Friday (April 9) from 3 to 6pm to talk about their business adventures. It can be heard via www.TAEradio.com... thought it may be of interest to you or your readers!
All the best,
Mike
A socialist choosing wealth creation over redistribution? A consumption tax to replace the unfair income tax? Why waste your e-breath? Yobama wouldn't recognize growth economics even if he fired Geitner!
Dr. Cornwall, I thoroughly agreed with this article and wanted to make another suggestion specifically towards how we can move forward as a Nation economically. I think we would both agree that an entrepreneurial mindset is key towards economic revitalization, as well as the strengthening of small businesses.
I believe a Small Business Investment Credit - Zero Tax on Capital Gains would be a huge step in entrepreneurial businesses to finally become planted and allow for growth. I think the legislature needs to provide incentives for privately investing in small businesses in a time where public markets are volatile for investors and small businesses are unable to obtain loans from banks.
I enjoy your articles very much and would enjoy speaking further.
You're right.
You are too optimistic.