All appeared normal on July 4th with fireworks, backyard cookouts and main street parades on full display — proof that the can-do spirit of America is still holding up even as the sterile data points and trend lines of our nation’s sagging economic growth have been dropping off like a bad electrocardiogram.
The sad fact is that our holiday took place in the worst economic slump in post-war economic history. Public historic data from the Congressional Budget Office (CBO) illustrate at a high level how deep a hole failed political leadership and misguided policies have dug. In stark visual terms, this graph of our historic and current growth rates shows how urgent the problem is:
The blue line charts average annual economic growth beginning in the 1950s and moving to the present. Note a healthy compounding gross domestic product (GDP) of 3.2 percent. The corresponding red line charts actual GDP rates across the same time period compared to the average rate shown in blue. Even in periods of recession, the actual growth rate represented by the red line seldom strayed too far from the average growth rate for too long, and always returned to the norm.
Not true today. The hole we have dug in recent years is historic in depth and magnitude, and has been in the works for more years than many partisan critics may remember. As you see, the first warning lights were beginning to go off in 2006 as our GDP started losing steam and trending farther off the norm. Rather than return to normal, it continued to trend farther away as the government continued to spend recklessly, build unsustainable deficits and promote policies that impaired growth and wealth creation.
Today, we are being told by some budget analysts, pundits and economists that we have to live with it. In fact, new economic growth projections issued by the CBO show that the office projects an annual economic growth rate of just 2.4 percent in the coming years.
Is this really the new normal?
Our government and others seem to be telling us yes. If that’s true, then our new growth trend line will be about 14 percent underneath our proven 50-plus-year growth rate in just a decade. That means salaries will be down an average of 14 percent, capital available for investment will be down the same amount and our children and grandchildren will be the first generation of Americans not to live more abundantly than their predecessors.
What does that translate to for America’s households? A family of four with an income of $45,000 in 2005 could have expected to earn about $75,000 in 2021 under old growth rates. Under the new, lower projections, that family would only take home $64,600 in 2021, or $10,400 less annually. Over the period from 2005 to 2021, the total loss for this family would be $96,977 — enough money for this family to purchase eight years of groceries, 31 years of gas for one vehicle or four years at a public four-year college.
Major action to reverse course must occur now. Americans are eager to roll up their sleeves, dig in and close that ugly gap between old and new growth rates. We can fix the problems ourselves through the sheer spirit, energy and optimism that was on such vivid display across the nation this past holiday weekend. Just cut the reckless spending, free up our capital through lower taxes and let us make the old normal new again.
Jim Gilmore, the former governor of Virginia, is president and CEO of Free Congress Foundation.