On the eve of perestroika
In the life of almost all civilizations, a time comes where, as Yeats put it, “things fall apart.” The internal principles and assumptions that used to seem to work begin to break down. If the engines of growth have not ground to a halt, they certainly could use some fresh oil: stagnation replaces new opportunities. Everything that used to work suddenly doesn’t. What would have been an easy projection of power settles into a stalemate.
The United States has long been used to a steady pace of growth. A vibrant economy created more opportunities for Americans of all walks of life; the rising tide of growth really did lift all boats. This economic growth gave hope both to the nation as a whole and to distinct individuals. According to the U.S. Bureau of Economic Analysis, real U.S. gross domestic product (GDP) grew at an average annual rate of about 3.5% between January 1947 and January 2001. This rate of growth allowed for a doubling of the economy every 17-20 years.
Recent history tells a very different story, however. According to the BEA, between January 2001 and January 2012 the economy grew at an average annual rate of just 1.6%, less than half the average annual growth rate of the second half of the twentieth century. Nor can we entirely blame this stagnation on President Obama or even the Great Recession. During President George W. Bush’s presidency, from January 2001 to January 2009, annual GDP growth averaged 1.4%. Even during the period of growth between 2001 and 2007, annual GDP growth was just 2.7%. The supposed boom times in the past decade have lagged behind the average growth of the past; only about one year of the Bush presidency saw GDP growth greater than the average of the past. The Great Recession has only underlined the lost economic ground: as of April 2012, real GDP had only increased by about 2% since the economic peak of mid-2007. The U.S. economy has barely grown at all since 2007; that’s almost five years of average economic growth well under 1%.
Job growth numbers have also lagged. The net number of Americans added to private payrolls during George W. Bush’s administration is around a million. Granted, the economic crisis depressed this payroll number. But even by early 2008, at the peak of private employment during the Bush years, not even six million more jobs had been added to the private economy since January 2001. During Clinton’s two terms, over 20 million jobs were added to the economy. During Reagan’s administration, over 16 million were added. Even Jimmy Carter — malaise and all — saw jobs increase by well over eight million during his single term in office. Since January 2001, barely a million private jobs have been added to the economy. So Jimmy Carter in four years saw at least eight times the number of jobs added to the economy over the past eleven.
Something has gone awry in the U.S. economy over the past decade. The Cold War provides a troubling parallel here. By the late 1970s and early 1980s, Soviet growth began to slow considerably. By how much it slowed remains a point of contention (the notorious secrecy of Kremlin bureaucrats makes exact economic numbers hard to pin down), but official C.I.A. numbers estimated that average annual economic growth for the Soviet Union was about 1.9% between 1975 and 1980 and 1.8% between 1980 and 1985. These estimates would give the Soviet Union a faster average growth rate between 1975 and 1985 than the United States has seen in the past decade. After the collapse of the Soviet Union, many charged the C.I.A. with overestimating Soviet growth, particularly in the 1970s and 1980s. An alternative measure, established by economist G.I. Khanin, finds that the U.S.S.R. grew at an annual rate of 1% between 1975 and 1980 and at an annual rate of 0.6% between 1980 and 1985. This statistic puts U.S. growth in a slightly better light, but one can only take so much solace from the fact that the United States has still had almost five years of average annual growth at or below the most pessimistic estimates of Soviet growth rates in the early 1980s. Even by the standards of a Soviet five-year plan, the last five years of the American economy’s growth have been disappointing.
Thankfully, the United States is not the Soviet Union. Americans are wealthier, healthier, and — most importantly — freer. The American economy has many more structural strengths and is in many ways far more vital than the Soviet system was in the 1980s.
But this collapse in growth has an important warning. Built upon a flawed premise, the U.S.S.R. failed to cope with a market-oriented world economy and eventually collapsed. The United States’s founding premises are far nobler, but the U.S., too, is struggling in the face of new internal and external challenges. The nobility of its founding principles would make the collapse of the United States a cause for especial mourning, so it is even more pressing to diagnose our problems and to search for solutions.
In the new order of globalism, the United States has seen its industrial sector become a hollowed-out shell, as domestic legislation penalizes industry and U.S. trade policies encourage other nations to distort the marketplace. The financial sector has morphed into an ever-more powerful and unstable casino; with the backing of government (including the present White House), banks have increasingly centralized and exposed the U.S. and global financial systems to new systemic risks. Our nation’s health-care system grows increasingly more expensive, unwieldy, and bureaucratic. A mortgage bubble fed by easy credit and corruption and made worse by stagnating incomes has left many households with a mountain of debt. Depressed incomes for the middle class both facilitated the era of excess credit — politicians in Washington were anxious to grant at least the illusion of progress to the average American — and exacerbated its fallout — even as Americans borrowed more, they became less able to pay back their debts. Years of stagnating median hourly pay-rates have come home to roost, depressing domestic demand and the capacity of the market to renew itself.
This broader economic faltering has also accelerated the rate of government spending. Part of the story of the past four or so years is the transfer of private indebtedness to the public; with the anemic growth of the past decade no longer able to be financed by private borrowing, the federal government has stepped in.
Some would like to make the next election a mere rehash of past ones, drawing the central line in the sand as one about tax cuts and, with the Ryan pick, Medicare reform. Yet we should acknowledge that the economic policies of Ronald Reagan, like his foreign policies, were targeted to a specific set of problems at a specific time. Since the Bush tax cuts went into effect, the average effective capital gains tax rate has been lower than it was for nearly every year of Reagan’s presidency (with the brief exception of 1982). The maximum capital gains tax rate has certainly been lower over the last near-decade than in the past. Taxes as a percentage of GDP have not been lower in decades. Yet still our economy stumbles along. If tax cuts were the silver bullet for renewal, our nights would still not be scarred with the howling of disappointment. Meanwhile, the Medicare reform advanced by Congressman Ryan would not take effect for over a decade; if such a reform were to bear any economic benefits, we would not feel their full force for many years. Assumptions that government spending cuts will also provide a magic panacea are also possibly mistaken. During George W. Bush’s administration, government spending as a percentage of the whole economy was lower every year than it ever was under Reagan, yet economic growth under Reagan far outpaced that of the 2001-2009 period. (Of course, the Obama administration’s record also shows that spending hikes alone will not guarantee economic prosperity.)
In the face of the seeming stagnation of the late 1970s, Ronald Reagan and other Republicans led with new solutions, restoring the pace of economic growth for the next two decades. It might be time for conservatives to engage in a new thoroughgoing search for solutions, one that goes beyond the policies of tax cuts and the rhetoric of spending cuts. America’s industrial prowess must be restored, its health-care system revised, its financial sector reformed, its middle class renewed. In a graveyard of failed policies, conservatives must be willing to explore the broader palette of policy responses.
In his speech to the Republican National Convention, Governor Romney suggested something of this need for bigger-picture thinking. Of his five strategies for renewal (a national energy policy, improved schools, trade reform, steps toward a balanced budget, and small-business restoration), tax cuts played a subsidiary role, arising only for point number five (small businesses). With the limits of old orthodoxies made more plain with every passing quarter of economic stagnation, we might be entering an era of experimental politics, where the finding of solutions involves an open-ended investigation and demands policy flexibility. When conventional wisdom has failed, the ground is open for the finding of new conventions.
Yet this reform would not be for the pursuit of mere novelty but for the re-realization of higher truths and more enduring ideals. One of the critiques made by abolitionists of the American slavery system was that it embodied a short-circuiting of opportunity: not being free labor, the slaves could not improve their own lots. For these abolitionists, as for countless Americans across time, openness of opportunity has been a foundational concept for America. As Lincoln said in an 1860 speech, “We do wish to allow the humblest man an equal chance to get rich with everybody else.” Now is certainly not the time to surrender this promise of new growth. Nor should we give up on some of the central tenets of the United States as an aspirational nation: that a free market, with the proper girding of government, can provide prosperity for a wide swath of Americans; that hope is more than a campaign slogan but serves as a vital social glue and spiritual reward; and that, in the great American pageant, we can both improve our own lots in life and better those of our neighbors.
Fred Bauer is a writer from New England. He blogs at A Certain Enthusiasm, and his work has been featured in numerous publications.