A Future of Secular Stagnation

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President Joe Biden speaks at Tidewater Community College in Portsmouth, Va., May 3.



Photo:

Evan Vucci/Associated Press

One critique of President

Biden’s

historic spending blowout is that it steals economic growth from the future in return for a temporary surge in the next two years. Imagine our surprise to see the White House confirm this criticism in its own budget proposal.

That’s the not-so-fine print in the President’s fiscal 2022 budget outline, which was conveniently released on the Friday before Memorial Day weekend when most of the press corps was heading out of town. We’ve already reviewed the $6 trillion spending lowlights, but nearly as striking is the budget’s prediction for the U.S. economy through the next decade.

In a phrase, the President’s economists are predicting the return of “secular stagnation.” Readers may recall that unfortunate term from the

Obama

Presidency, when leftish economists sought to explain why growth seemed stuck at 2% or so despite unprecedented monetary stimulus. The fault, they said, was in our stars and not in their policies.

The Biden budget says we’re likely to stagnate again after the Keynesian spending flood of 2021 and 2022—though at even lower growth rates than the slow-growth Obama years. The White House predicts a two-year growth boom of 5.2% in 2021 and 4.3% in 2022, as the country returns to normal after the pandemic and record amounts of government spending flood the economy to goose consumer demand.

But the White House says growth will sink to 2.2% in 2023, and then average below 1.9% for the next eight years. That’s striking for a couple of reasons.

One is that the White House is essentially conceding that all of its unprecedented monetary and fiscal stimulus really is living for today with little regard for the future. It implicitly concedes that the growth it spurs now will have to be paid back later in the form of higher taxes or tighter monetary policy, which might reduce growth. This is the definition of a “sugar high.”

This contrasts with genuinely pro-growth policies, which seek to create the circumstances for long-term prosperity. They create better permanent incentives to work and invest. They reduce policy distortions that lead to malinvestment. That was the point of the 2017 tax reform and

Trump

deregulation that showed promising early returns until the pandemic so rudely interrupted.

Mr. Biden has also promised better long-term growth with his economic slogan, “Build Back Better.” But, as our contributor

Donald Luskin

asks, then where’s the “better” in the Biden economic forecasts?

***

The White House economic analysis boils down to an assertion that slow growth is inevitable. The belief is that the U.S. economy can’t grow faster than 1.9% over the long term because the U.S. population is aging and demographics is destiny. Productivity growth is fated to slow down, and tax and regulatory policy doesn’t matter.

Some on the left are even praising the Biden White House for the “honesty” of its slow-growth forecasts. Taxes have to rise for the sake of income equality, and regulations must multiply to solve the climate crisis, as if the latter were possible. If slower growth is the result, then so be it. Get over it, America.

But if this is our fate, the implications are as depressing as the numbers. It means Americans are destined to endure the economic malaise that has haunted Japan and much of Western Europe in recent decades. It means a less dynamic economy, which means fewer opportunities for upward mobility. And it means slower growth in incomes—especially for the young and those who don’t already own assets.

For the government, a 1.9% economy means a growing disconnect between the rising costs of the Biden entitlement state and a reduced ability to finance it. There’s no way an economy growing that slowly can afford both a robust defense budget and the Biden social welfare policies.

To put it bluntly, this is a budget that is anticipating America’s economic and political decline. The question is whether the American people will settle for it.

Wonder Land: Negotiating with the opposition, the left concluded, merely impedes achieving their policy goals. Images: AP/Bloomberg News/Getty Images Composite: Mark Kelly

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the June 2, 2021, print edition.

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