Daniel J. Mitchell

I shared a chart back in February that shows how long it takes to double GDP based on different growth rates.

For instance, if the economy grows only 1 percent per year, it takes 70 years before the economy doubles. Think Italy or some other decrepit European welfare state.

But if the economy grows 4 percent annually, the economy doubles in less than 20 years. I’d point to Hong Kong and Singapore as examples, but they grow even faster.

The key point is that long-run growth is the key to a more prosperous society.

And that’s why the relatively weak growth of the Bush-Obama years is so troubling. Moreover, CNBC reports that some policy makers fret that the economy could be facing a period of prolonged stagnation.

Is there something seriously wrong with the economy? It’s a scary prospect, and a concern that’s gotten louder and louder over the past year. In economic circles, it goes by the alliterative name of “secular stagnation.” And it’s a phrase that Fed watchers are likely to hear more and more in the months ahead. Recent comments by the vice chairman of the Federal Reserve, Stanley Fischer, indicate questions within the central bank about whether the slow growth that has followed the recent recession could reflect, or at least could potentially morph into, longer-term issues within the economy. …The theory of secular stagnation was first developed by Alvin Hansen, who wondered in the midst of the Great Depression whether diminishing investment opportunities in a maturing economy would stunt economic growth and permanently prevent full employment—at least in the absence of robust government intervention… These theories have found a new life in the aftermath of the so-called Great Recession, as the U.S. is experiencing (albeit to a much less dramatic degree) slow growth over a relatively long time period.

I agree and disagree.

I agree that something is wrong with the economy.

But I disagree with the Keynesian interpretation that the economy’s weakness is because of some mysterious malady that requires government intervention.

Indeed, the problems exist because politicians are doing too much. If we want faster growth and more jobs, we need government to get out of the way.


Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.
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