Can you imagine a day in our country when the average household is rich? I can. In fact, if the proper pro-growth policies are pursued our kids and grandkids can actually be what is today considered rich. Let’s do the math.
In 2008, the average household income in the United States was $52,029. Now if we have an average annual growth rate of just one percent in constant dollars, we double the growth of our economy in 72 years, and quadruple in 144 years; not exactly within the lifetimes even of our grandkids. But at an average growth rate of three percent, we double the economy in 24 years and quadruple it in 48 years. At a four percent rate of growth, we could double the economy in only 18 years and quadruple it in only 36 years.
Put simply, with a four percent growth rate, the average household income could be over $200,000 in today’s dollars by 2047. And that’s realistically possible. For example, between 1946 and 1973, the U.S. economy grew at an average rate of 3.8 percent. Contrast that, however, with the laggardly 1.1 percent rate of growth of the U.S. economy in 2009 and a negative 2.6 percent last year. At growth rates like that, we don’t get to $200,000 dollars per household in today’s dollars until well beyond mid-century. So you can easily see why the policies both parties have been following over the past few years not only aren’t helping this generation, but also will not make our kids and grandkids rich.
My kids will be in their mid-50s in 36 years, and I would like for them to live in an amazingly prosperous country that will undoubtedly be doing unbelievable things. We…no they…can’t achieve that in an economy growing at one percent.
On the other hand, if we adopt pro-growth, pro-jobs, pro-investment economic policies that lower taxes, reduce regulation, and promote an entrepreneurial climate, we can get there. But if we keep moving toward a European socialist model and emulate their rate of growth we not only won’t, we can’t.
Rather than following redistributive economic policies, we should lower the corporate tax rate, widen the tax base, lower overall taxes; and reform Social Security, Medicare and Medicaid.
Keep two critical elements in mind. First, for the past 50 years, the two dominant political parties have stayed between the 45-yard lines on federal spending. It has averaged right around 18 percent of gross domestic product, dipping to the high 16s and topping out just slightly over 20 percent. But most years we’re close to the average. Now we are spending at a rate in the mid-20s and even higher. Hello slow growth; goodbye job creation. I want to loudly ask my liberal and conservative acquaintances if this high level of federal spending and slow growth really helps the “working people” they claim to champion. I think it is obvious that it does not.
A second critical element is our public debt. Professors Carmen Reinhart and Kenneth Rogoff have recently written a tremendous book, “This Time is Different, a Panoramic View of Eight Centuries of Financial Crisis,” that chronicles historic national debt levels. They conclude that a 90 percent government debt to GDP ratio is a tipping point that creates financial crisis and kills, not just stifles, economic growth. And we are rapidly marching to that 90 percent tipping point.
Keep in mind that the Reinhart-Rogoff analysis spans eight centuries of government debt defaults. Their conclusion? — the claim that “this time is different” every time an economy goes through a boom-and-bust cycle is invariably proven wrong.
So the choice is clear: a future that is almost unbelievably positive, even difficult to comprehend it is so good, or one that is depressing to contemplate. I will fight for the positive. All of us should; not for us, but for our kids and grandkids. The fulfillment of their economic future is the true American dream.