A few weeks ago, liberal critics jumped on Republican presidential candidate Jeb Bush’s suggestion that he could get the nation’s economy to grow at a 4 percent annual rate. They not only criticized the policies he proposed to get there; they criticized the goal itself as unrealistic.
No “serious economist” would consider 4 percent annual growth “within the realm of possibility,” White House Council of Economic Advisers Chairman Jason Furman told CNBC at the time.
With that as the backdrop, consider today’s news from the Commerce Department that during the second quarter of this year, the economy grew at an annual rate of 3.7 percent. That’s up from an earlier estimate of 2.3 percent annual growth.
Now, that is based on three month’s worth of economic activity. One quarter does not constitute a trend. The argument is whether we can engage in a set of policies that would sustain roughly 4 percent annual growth over several quarters at a time.
It’s worth noting what contributed to the higher growth, according to the federal Bureau of Economic Analysis: “positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment.”
In short, it’s the combination of higher public spending at the state and local level as well as more private sector spending. In particular, state and local government spending increased 4.3 percent over the previous quarter, after having declined in 2012 and 2013 and increased less than 1 percent in 2014.
At the same time, federal government spending overall remained level; in the first quarter there had been a 1.1 percent increase after having declined six of the previous eight quarters. The federal government hasn’t been a brake on economic growth so far this year, but it hasn’t been an accelerator, either.
That underscores the missed opportunity to build sustainable growth for the working-class economy, the kind of growth that moves the economy toward full employment and lifts wages. When Dave Johnson looked at the dismissive reaction to the 4 percent growth goal earlier this month, he noted that the Progressive Caucus’ People’s Budget, if enacted, would be bringing the country to a projected 3.9 percent growth rate if it had been enacted. How? “Solving some of America’s pressing problems would boost our country’s economic growth,” he wrote, including addressing our underinvestment in infrastructure, relieving the $1.3 trillion debt load on college graduates, and taking other steps to insure workers reaped more of the rewards of work and productivity.
Johnson added that “[o]ur enormous, humongous trade deficit cuts more than 1 percent from economic growth all by itself,” and even the latest economic growth report notes that our trade deficit served as a drag on growth.
At least for one quarter, the economy showed remarkable strength, even though conservatives in Washington and the states have taken extraordinary steps to block investments that would boost growth, create jobs and reduce the inequities that persist in today’s economy. We should use this to talk about what would be possible if progressives had a real opportunity to enact our economic growth agenda, and reject the limits that the establishment in both political parties want to constrain us to.