Our contemporary national economy is growing at a moderate rate of about 2% per year. Many people think this is sluggish, comparing it to the much higher growth rates the US experienced in the years after WWII up through the early 1970s. That era was essentially ended with the first Arab oil embargo and the stagflation of the Carter years. Since then the economy has been moving in and out of recessions. The most well know, prior to the Great Recession of 2008-10, was the Reagan recession of the early 1980s. Since then we have experienced faster growth during the last years of Reagan and the Clinton years. The Reagan boom was fueled by increasing government debt. The Clinton years were fueled by private growth. Underlying all this was an expansion in productivity spurred by technological progress, especially in computer driven productivity. There are only two ways for an economy to grow: demographically or productively. That is, either more people are added to the economy or workers produce more per worker. Productivity is a measure of how much each worker produces in either goods or services. For example, we currently produce about the same amount of steel now as in the 1970s, but with about 1/3rd fewer workers: that's productivity. The personal computer has also increased productivity by allowing fewer employees to produce more output. This is how many white-collared workers were replaced. It is thought that the productivity enhancements of the early computer era have been gained. Our population is not growing rapidly and with the current mood favoring reducing immigration, we are not getting a boost from the demographic side. So what can we do to unleash economic growth?
I think the answer lies in two areas: student debt and personal housing assets that are not worth the value of the mortgage. Student debt prevents young people from investing in assets and spurs them to accept jobs that do not pay as well as these people might otherwise get because they can't wait for better paying jobs to appear. The "underwater" housing assets deprives owners of investment capital and prevents them from moving, i.e., selling their homes, to places with better job prospects. I would propose two courses of action that might alleviate these problems. Both of these solutions call for increased government participation in the economy. Both solutions rely on current free market theory and both will help the middle and working classes more than the rich or poor. First, I would forgive all student debt, second, I would buy up the mortgages on all the houses.
Comments