Slow economic growth is the new normal apparently


So Gavyn Davies tells us over in the Financial Times:

The results (Graph 1) show an extremely persistent slowdown in long run growth rates since the 1970s, not a sudden decline after 2008. This looks more persistent for the G7 as a whole than it does for individual countries, where there is more variation in the pattern through time.

Averaged across the G7, the slowdown can be traced to trend declines in both population growth and (especially) labour productivity growth, which together have resulted in a halving in long run GDP growth from over 4 per cent in 1970 to 2 per cent now.

Obviously, for the sake of our grandchildren, we'd like to work out why there has been this growth slowdown. Fortunately, there's an answer to that:

But run the numbers yourself–and prepare for a shock. If the U.S. economy had grown an extra 2% per year since 1949, 2014′s GDP would be about $58 trillion, not $17 trillion. So says a study called “Federal Regulation and Aggregate Economic Growth,” published in 2013 by the Journal of Economic Growth. More than taxes, it’s been runaway federal regulation that’s crimped U.S. growth by the year and utterly smashed it over two generations.

A version of that paper can be found here.

No one is saying that there's not a case for regulation: there's always a case for every regulation, obviously. There's also a smaller class of regulations where the case made for it is valid: where it's worth whatever growth we give up in having the regulation in order to avoid whatever peril it is that the regulation protects us from.

But this doesn't mean that all regulations have a valid case in their favour: and one darn good reason against many of them is that we're giving up too much economic growth as a result of the cumulative impact of all of those regulations.

If we want swifter economic growth, something we do want for the sake of those grandkiddies, then we do need to cut back on the regulatory state. Hopefully before all growth at all gets strangled by the ever growing thickets of them.