Carola Conces Binder wrote a very interesting article over at her blog Quantitative Ease, Another Four Percent. The reference is to Jeb Bush’s claim that he’s gonna rev up the economy to 4% growth. He got this number from a brainstorming session at his big brother’s “institute.” Brainstorming is a nice word for it. A more accurate word would be BS session. It’s the kind of number that is pulled out of the anus of one animal or another. But why 4%? Why not 6%? Or 40%? Or a Googolplex — if we are just making it up?
Well, there is a reason for it. The economic growth rate under Obama has been 2%. So why not double it? It isn’t totally out of the question. Certainly we saw growth near that level during Clinton’s presidency. But that was largely fueled by the stock bubble. Matt Yglesias, for one, is not impressed, Jeb Bush’s 4% Growth Promise Is 104% Nonsense. He pointed out a few things. First, since 1980, the average GDP growth rate has only been 2.7%. And it has never been as high as 4% for an entire president’s term. And perhaps most disturbing for Jeb Bush is that under his brother and father, the growth rate was only a bit more than 2%.
I’m personally fed up with GDP growth as a measure worth caring about. Our economy works very well at growing. But it does a terrible job of distributing the rewards. And the power elite understand this. When John Cochrane discussed whether 4% growth was reasonable, he brought up the 11 million undocumented workers. Why? Because that would increase GDP. We aren’t talking per capita GDP here. The idea is just to get more wealth in the economy overall. The power elite know that this means they will get a cut of it. The median income can slip further and further down, but their incomes will go up and up.
Binder noted the real reason that 4% was picked, “Let’s face it, we have a thing for nice, round, kind of arbitrary numbers.” In fact, Jeb Bush himself said, “It’s a nice round number.” And this seems to be the state of economic analysis at this point. She mentioned another “nice round number” that has no basis in reality: the Federal Reserve’s 2% inflation target. This is a number that Alan Greenspan apparently just pulled out his (or some other convenient) anus. But it is now taken as though it were brought down off Mount Sinai on clay tablets. Yet in the late 1960s, we had a great economy with inflation in the 4% to 5% range. But the economy was only good for workers, so I guess it doesn’t count.
Economists have a lot of complicated and elegant theories about the way the economy works. And some of those theories have the benefit of even being correct. But when it comes to economic policies, all these theories are used for is to justify wild guesses that the power elite grab hold of. I’m sure that Jeb Bush can find an economist who will build him a model that shows that if he just cuts taxes by the right amount, we will get GDP growth of 4% per year for a decade. But it’s all just done for the personal gain of the powerful. It’s religion — faith based policy. And heretics like me who think our inflation target ought to be double what it is aren’t burned at the stake. We are just ignored. Because obviously we are wrong. All the smart and knowledgeable people know that the inflation target must be 2% — that’s what defines who is smart and knowledgeable.
So why shouldn’t Jeb Bush pull out 4% growth as what will happen if he becomes president? It’s no less grounded in reality than any of our other economic policy.