Jun 13 2011

Stanford’s John Taylor Likes a JFK-style Boom

Imagine my surprise when Republican presidential candidate Governor Tim Pawlenty proposed a 5% national economic growth target the day after (Tuesday, June 7) my GDP post appeared — “Multi-Century GDP Trends Point to a Near-Term 1960s-Style Boom” — in which I showed that long-term GDP trends point to a JFK-style, 5% economic boom by 2015.

Are we headed for a new Camelot-style golden age of prosperity, exploration, and technology, or just a “new normal”?
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Of course I was unaware of Govenor Pawlenty’s economic plan, but a 5% goal is historically realistic as we approach the long-awaited, transformative Maslow Window.

This weekend, in his blog “Economics One”, Stanford economics professor John B. Taylor expressed support for Pawlenty’s proposal.

I think the goal makes a great deal of sense. It would focus policymakers like a laser beam on the great benefits that come from higher growth and on the pro-growth policies needed to achieve it. As with any goal, if you take it seriously, you’ll choose policies that work toward that goal and reject those that don’t.

In fact, according to Harvard economics professor Benjamin Friedman, rapid economic growth is a moral imperative.

Periods of economic expansion in America and elsewhere, during which most citizens had reason to be optimistic, have also witnessed greater openness, tolerance, and democracy. To repeat: such advances occur for many reasons. But the effect of economic growth versus stagnation is an important and often central part of the story.

But not everyone gets it.

For example, the Washington Post (6/9/11; R. Marcus) suffers from a short-term perspective.

Yes — very occasionally. Once in the past 30 years, with GDP growth of 7.2 percent in 1984. Pawlenty conveniently cherry-picks years (1983 to 1987, 1996 to 1999) that come close to his 5 percent target — but those periods followed stretches of economic slowdown. It’s certainly never grown at a 5 percent clip for 10 years straight …

Wrong twice. We are recovering from an “economic slowdown” so, as the Post implies, we should expect a burst in growth relatively soon. And we’ve previously had decade-long stretches at or above 5% — they’re called Maslow Windows.

For example, during the 1960s Apollo Maslow Window the U.S. grew at 5% for nearly the entire decade, stimulated by JFK’s famous tax cuts. And for 9 years during the Peary/Panama/T. Roosevelt Maslow Window — following the financial Panic of 1893 — growth was 5%. Plus for 12 years (1844 to 1856) during the mid-19th century Maslow Window — following the financial Panic of 1837 — mean annual growth was 5.8%.

A sustained, 1960s-style ~5% boom is the hallmark of Maslow Windows over the last 200 years. That’s one key reason a near-term, JFK-style boom is expected.

Looking at recent trends in productivity, employment, and demographics, Taylor’s back-of-the-envelope calculation projects about 2% employment growth and 2.7% productivity growth. Their sum suggests 5% annual growth sustained over a near-term decade is very doable.

One response so far

One Response to “Stanford’s John Taylor Likes a JFK-style Boom”

  1. Charles Atkinsonon 02 Aug 2011 at 8:20 pm

    …Snip…

    Since this is unlikely to be read by anyone in the world,and if read not appreciated, and if appreciated, not acted upon!!!
    But I agree with Taylor far more than Krugman even though I am a Cambridge Progressive.

    Charlie Atkinson

    Hi Charles,

    In case anyone does read your Comment I edited most of it. :)

    BTW, this blog is syndicated to the financial site Benzinga.com, so it’s highly likely lots of fun folks will see it!

    Oh and about Krugman, no serious person can take his comments on the debt situation as anything more than political talk.

    Keep reading Taylor…

    Bruce

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