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More Grand Bargains Needed
By Gerald F. Seib
Campaign rhetoric can obscure as much as enlighten, and so it is with the economic debate of 2012.
The real problem isn’t that the recovery from the deep recession of 2007 to 2009 is too slow (though it is) or that the deficit is too large (though it is) or even that unemployment is too high (though everyone agrees it is).
The real problem is that America’s economy simply isn’t the high-growth, jobs-producing machine it once was. As just the latest indication, the International Monetary Fund on Monday lowered its forecast of U.S. and global growth for the next two years.
This is the predicament that ought to be dominating campaign conversations. It’s a problem that predates the current economic mess, and it will persist long after the recovery—unless both parties in Washington find some way to break the policy gridlock that has become a weight slowing the American economic machine.
That’s the bad news. The good news is that, with a new attitude and a sense of urgency in Washington, this is doable. Most sensible people in Washington know exactly what kinds of compromises on the deficit, taxes, trade and entitlement programs are within reach to change the economic trajectory.
What’s needed is simply for both parties to accept that neither is likely to be in full command of the government after the fall election and perhaps for some time to come, and to move on to the compromises needed to end a policy paralysis that is exacting a real economic price.
It would be nice if this reality were getting more attention in the campaign now; far more important is that it be reflected in the tenor of the conversation after the election.
This imperative is well embodied in a new study, titled “The Bargain,” soon to be released by Third Way, a centrist think tank. It lays out a series of seven big policy bargains the two parties could strike to address economic malaise.
First, though, the paper illuminates the bad economic news that lies at the heart of America’s predicament: The U.S. economy is widely projected to grow at only about a 2.3% or 2.4% annual rate for the next couple of decades, even after it has recovered from the recession. “That is a full point less than the previous six decades of growth,” the paper notes.
A percentage point may not sound like much, but the consequences of prolonged slow growth are profound. In just the period between 2017 and 2022, if the economy were to grow at its long-term average of 3.3% rather than 2.3%, it would produce $1 trillion in higher output, $904 billion in greater personal income, 1.1 million more jobs and an annual deficit $261 billion narrower. Average incomes for Americans, the study notes, would be “several thousand dollars higher.”
So, how does the country win back that extra percentage point of annual growth? Washington can’t provide the entire solution, but it certainly can provide a big part of it. That would require not just one “grand bargain” between the two parties—the kind that Democratic President Barack Obama and Republican House Speaker John Boehner tried to negotiate on the federal budget last year—but a whole series of them.
Obviously, getting there requires each party to give some ground. The Third Way paper cites seven areas of potential bargains. Among them:
