Jeb Bush’s 4% growth promise is 104% nonsense

Jeb Bush wants the American economy to grow faster. A lot faster. “So many challenges could be overcome if we just get this economy growing at full strength,” he observed in his presidential campaign kickoff speech. “There is not a reason in the world why we cannot grow at a rate of 4 percent a year.”

It’s an exciting idea that really would solve a lot of problems, allowing the country to expand opportunity down the socioeconomic ladder without needing to redistribute wealth away from those who already have in. Then again, if some obvious prescription existed to deliver that kind of rapid growth, you might think that Jeb’s brother or his father would have hit upon the formula.

But though the campaign promise is a bit silly — even the policy institute that cooked up the goal turns out to admit it’s more aspirational than real — the concept raises the important question of to what extent the United States can grow its way out of some of today’s problems. The answer tells us something important about the limits of economic theory, the American electorate’s hunger for unrealistic promises, and how well the Bush family understands both.

It is pretty unrealistic. Since Ronald Reagan’s inauguration, the American economy has grown on average 2.7 percent per year.

Jeb is promising to do not just a little better than average, but dramatically better than average. And he’s promising to do so even though the aging of the population puts a natural check on growth, since as people become too old to work the economy loses output.

It is better than Bill Clinton or Ronald Reagan achieved, that’s for sure. And it’s much better than what the country experienced under the previous two presidents from Jeb’s family, or what we’ve seen in the Obama years:

Mathematically speaking, GDP growth is caused by adding up three factors.

Historically, single years of very rapid growth have normally been accomplished through number two. For example, early in Ronald Reagan’s administration the Federal Reserve sharply raised interest rates in a deliberate effort to sharply increase the unemployment rate in order to bring down inflation. Eventually the Fed reversed course and sharply decreased interest rates. That led to a rapid decline in unemployment and a very rapid rate of economic growth — 7.3 percent in 1984.

Obviously this is not a trick that can be repeated many times. Growth slowed to 4.2 percent in 1985 and then to 3.5 percent in 1986 as the economy rapidly ran out of unemployed workers. By the same token, achieving rapid growth through re-employment also requires you to balance things with periods of negative growth through unemployment. In 1981, for example, the economy shrank 1.9 percent. That’s why Reagan on average fell well short of 4 percent growth despite several excellent years.

Raising the population growth rate seems more sustainable.

There are about 140 million employed people in the United States. Allowing 1.4 million new workers to legally immigrate per year should add about 1 percentage point to the annual growth rate, and put us within striking distance of the 4 percent average, especially if we selected the 1.4 million to be disproportionately well-educated and likely to obtain high-paying jobs.

The last option would be to try to raise the productivity growth rate from the 2.3 percent average of the 1995–2013 period to something more like 3.6 percent. This would be a fantastic achievement if it could be done. However, even in the miraculous 1948–‘73 “good old days” period, productivity growth only averaged 2.8 percent.

Asked by Reuters to describe his thought process, Jeb said, “It’s a nice round number. It’s double the growth that we are growing at. It’s not just an aspiration. It’s doable.”

But 4 percent is not really a round number. The US economy grew faster than 2 percent in 2014, 2013, and 2012 and is projected by most economists to grow faster than 2 percent in 2015. Economists surveyed by the Associated Press, Politico, and the New York Times all doubted that 4 percent growth was achievable.

Wednesday, speaking in Iowa, Jeb defended the 4 percent target on the grounds that “aspirational goals” are important in politics.

According to James Glassman, Bush originally selected this goal at random, backed by zero substantive analysis of any kind:

That ambitious goal was first raised as Bush and other advisers to the George W. Bush Institute discussed a distinctive economic program the organization could promote, recalled James Glassman, then the institute’s executive director.

“Even if we don’t make 4 percent it would be nice to grow at 3 or 3.5,” said Glassman, now a visiting fellow at the American Enterprise Institute. In that conference call, “we were looking for a niche and Jeb in that very laconic way said, ‘four percent growth.’ It was obvious to everybody that this was a very good idea.”

Yes. Having presided over the only presidency since Herbert Hoover in which the country lost jobs, the worst terrorist attack in American history, and a costly invasion of Iraq whose purpose was to destroy a nuclear weapons program that didn’t exist, George W. Bush decided he could not deprive the world of his policy insights upon retirement.

Among other programs, the institute runs a 4% Growth Project, which is led by Amity Shlaes, a former Wall Street Journal editorial writer. Shlaes is a believer in the absurd inflation conspiracy theories of John Williams’s website, Shadowstats, according to which, among other things, the American economy has been consistently shrinking since 2004:

By this standard, “true” 4 percent growth has not been achieved in 30 years, and reaching it will require truly heroic efforts.

There is no clear and convincing evidence that anyone has read this book. But the introduction can be read for free on Amazon, and it contains the surprising admission that the goal is bullshit.

“The United States is much more likely to achieve the average growth rate it maintained from the end of World War II to the most recent economic downturn — a rate of about 3% — than it is to accelerate to a new long-term economic growth rate of 4%,” writes Brendan Miniter. Regardless, “The Bush Institute has set an intentionally provocative target in part because one way to find out what is actually attainable is to stretch for a goal that is seemingly just beyond one’s reach.”

Two reasons. One, if you help yourself to an unrealistic presumption that the economy will grow at 4 percent per year, then all kinds of things become possible. Budget problems, in particular, tend to melt away in the face of growth. Suddenly gigantic tax cuts are affordable, for example.

The other is that if you’re up on a debate stage, you’d much rather be the guy offering upbeat assessments of America’s potential to grow than the guy droning on about shifting demographics and Total Factor Productivity trends. You might recall that in 2000, the media roundly mocked Al Gore for attempting to point out that Bush’s promise to dramatically cut taxes without dissipating the budget surplus was mathematically impossible.