So I wake up this morning to find that Tim Pawlenty has suggested that we should get the economy growing at 5% a year. The liberal bloggers are saying that this is just crazy talk. And when I read this description on Matthew Yglesias' blog, I had to agree:
Tim Pawlenty's economic plan
calls for a 5 percent growth rate sustained over a ten year period, something he claims has been "done before."
I'm not entirely clear what Pawlenty is saying, as the speech is slightly ambiguous:
America's economy is not even growing at 2% today. And that's what all projections say we can expect for the next decade. That's not acceptable. It's not the American way. The recession may have changed our economy. But it didn't change our character.
The United States is still home to the most dynamic and entrepreneurial people in the world. They're all around us. Ready to innovate, invest, compete and create new businesses and jobs. That will mean opportunities for everyone.
They've been discouraged and weighed down. By President Obama's big government. And heavy handed regulations. They deserve a better deal. I'll give them one. And here it is.
Let's start with a big, positive goal. Let's grow the economy by 5%, instead of the anemic 2% currently envisioned. Such a national economic growth target will set our sights on a positive future. And inspire the actions needed to reach it. By the way, 5% growth is not some pie-in-the-sky number. We've done it before. And with the right policies, we can do it again.
He's not clearly claiming that he can actually get the economy's growth rate up to 5% and then sustain that over a 10-year period; he's just saying he can get the growth rate up to 5% rather than 2%.
5% real GDP growth over ten years is crazy. 5% nominal GDP growth is less crazy--indeed, if Matt got his way and we pushed our inflation target up to 4%, it would be practically guaranteed. Even 5% real GDP growth over some shorter period would be eminently possible; we're well below our economic capacity now, so there's room for fast growth, if the conditions are right.
Nonetheless, I think Pawlenty's claims are crazy--though not specially crazy. They're crazy the way that all political speeches on the economy are insane: they claim far more power over economic growth than any politician actually has.
It is entirely possible that the economy will, for some period in the next few years, grow at 5%. But if it does so, this will not be because Tim Pawlenty--or Barack Obama--have done something to cause it. We don't know how to lift real GDP growth much above its trend level, and we certainly can't do so for more than 18-24 months. A really bad president can lower growth from its trend (wage and price controls, anyone?) But--sorry, Republicans--Barack Obama is not that bad a president. And sorry, Democrats, but he's not that good, either. Any difference his tax and regulatory policies are making in our growth rate are extremely small, measured in basis points, not percentage points.
You've heard me point this out before--it's a mainstay of my campaign coverage. But as long as politicians keep saying it, I'll keep repeating it: the president does not control the economy. He cannot double our incomes, or even the economy's growth rate, by the sheer force of his fiery will.
Update: Sorry, I missed the unambiguously crazy part, which is well below what Matt highlighted
5% economic growth over 10 years would generate 3.8 trillion dollars in new tax revenues. With that -- we would reduce projected deficits by 40%. All before we made a single budget cut.
And as a friend points out, he's not talking about NGDP, because the administration's NGDP forecast is well over 2%.
I devoutly hope this is not going to become a major campaign plank. The most recent such craziness that I can recall came from JFK, who unfortunately attempted to actually act on his promise by inflating the hell out of the dollar.