WaPo's Samuelson: Shutdown Heralds New Normal of Slower Economic Growth

Monday, 14 Oct 2013 03:59 PM

By Michael Kling

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The government shutdown may be a harbinger of a new era of slower economic growth. And it won't be pretty.

That's the prediction of Washington Post columnist Robert Samuelson.

Annual U.S. economic growth averaged over 3 percent since 1950, but economists generally predict 2 percent future growth.

Editor’s Note:
Retired Americans Slammed by Obama’s Redistribution Plans

Society is not set up for such slow growth, says Samuelson, pointing to the book by economist Stephen D. King "When the Money Runs Out: The End of Western Affluence."

Without economic growth, economic and political competition will increase in a new zero-sum environment divided between winners and losers. Continually disappointed expectations will lead to a "breakdown in trust," he predicts, citing King.

The current political battle and intransigence in Washington, Samuelson says, is evidence that that's already happening.

Economic growth promotes more lending, creates an expanding tax base and enables a growing government, with generous funding for both defense and domestic programs.

That pattern may be coming to an end, as an aging population boosts spending for Social Security and Medicare.

So get ready for a more contentious future, he warns. Don't expect economic growth — which lessens differences and smoothes over society's problems — to continue to bail us out in the future.

Slower growth is due to long-term changes, not the recent recession, he explains, citing a study by the Cato Institute.

In recent decades, economic growth has been driven by more women joining the work force, a better-educated work force as more people finish high school and college, more computers and other machines and technological and organizational innovations.

Those growth drivers are disappearing — simultaneously.

Per capita annual income increases may decline to 1 percent to 1.5 percent.

"That's half to three-quarters the historical rate," he points out. "The increases would be small enough to be skimmed off by rising taxes, higher health insurance premiums or growing inequality. For many households, it would mean stagnation or worse."

Although many economists, including those serving the Obama administration, predict slower economic growth, that slowdown is not inevitable, argues James Pethokoukis, a columnist for the American Enterprise Institute.

For instance, immigration and Social Security reforms, growing shale gas and oil production, more big data analytics and infrastructure investment can all help boost economic growth.

"The early part of the 1980s and 1990s both saw rising concern that the age of fast U.S. economic growth was over — right before the economy accelerated," Pethokoukis writes. "And here we are again. But these new fears will become reality only if we stand by and do nothing."

Editor’s Note: Retired Americans Slammed by Obama’s Redistribution Plans

Related Stories:

David Stockman: Washington Has Created 'Sundown in America'

Shutdown Would Cost Economy $300 Million a Day, IHS Says

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