Economics: Why Is America`s Economy Growing So Slow?

 

(Drivebycuriosity) - The US economy is growing, but disappointingly slow. Recent indicators - like the cooling job market  - suggest that the economy is getting even weaker. 

Unfortunately America`s economy is growing slower than in the past. The green line in the chart above shows the long-term trend, which is 3.1% real growth p.a. (growth of GDP adjusted for inflation  scottgrannis). Since 2008 the US economy is just growing 2.2% p.a. (red dotted line) - and the gap is widening. What are the causes for the lower growth trend?

In the year 2008 the American GDP dropped sharply, thanks to the recession, known as the financial crisis. The recovery in the following years disappointed. Economic growth returned, but since 2009 has been growing less than before the recession.

 

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What happened? First, Obama happened. The liberal President shifted economic policy to the left side and expanded the government`s influence on the economy considerable. He did in fact not hike taxes much, but he expanded the regulations a lot. 

At the end of Obama´s regime the Federal Register, the daily depository of all things regulatory, has topped off at 97,110 pages, by far an all time record (image above ). The number of rules and regulations within those 97,000 pages is 3,853, the highest in 11 years. Of these final rules, 629 were flagged by agencies as having notable effects on small businesses ( forbes). Obama`s hundreds of new regulations cost the average household roughly $26,000 over a lifetime, according to a new study ( city-journal).

Obama´s regulations threw more sand into the delicate wheels of the economy and raised the costs of doing business substantially. “The regulatory state has grown under this administration seemingly without regard to the costs, practicality, or even legality, of rules pushed through by federal agencies," complained Chamber of Commerce President Thomas J. Donohue (politico ). No wonder that the growth trend of the US economy slowed.

 

                                   Bad Politics
 

 

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During the regency of President Trump the economy regained a bit. Above this paragraph you can see a segment from the Scott Granis chart above, where I amplified the period 2016-2020. The blue line (actual GDP growth) shows that in the second half of Trump`s regency the US economy grew a tad faster than the prevailing trend, till the Covid recession broke the trend.

What caused this acceleration? In 2018 Trump cut several taxes, including corporate taxes and several individual taxes ( investopedia)! The impulse of these tax cuts, which will expire in 2025, is slowly working through economy. The reduced taxes are stimulating investing and inspire to work more, creating more income. 

Unfortunately Trump created a new headwind for the economy by starting a trade war against China. His tariffs on imports from China disturb supply chains, put additional costs on US corporations and reduce consumption. Trump`s new tariffs work like tax hikes and compensate partially the positive impulse of his tax cuts.

 

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The image above this paragraph amplifies the last segment of the Scott Granis chart, covering the Biden regency. After the short-lived Covid recession US economic growth came back to the sluggish trend (which includes the Covid recession). 

The blue line shows that during the Biden presidency the economy grew a bit slower than under Trump. Unfortunately the Biden administration continued Trump`s trade war and made it even worse by restricting the exports of computer chips to China. 

Biden also repeated Obama´s left shift. He increased the role of government and expanded the regulations. Biden`s administration regulates dozens of necessities, such as Internet service, household appliances, nursing homes, electricity, health insurance, and of course fossil fuels. According to a recent report since taking office, President Biden’s agency rulemakings have cost the federal taxpayer $1.37 trillion and counting ( budget.house.gov). Another study calculates a lifetime per family burden of $47,000 from Biden’s new regulations ( city-journal).

To make things worse Biden uses a powerful tool to strengthen the role of the government: antitrust. For a long time antitrust enforcement stood for the interests of the consumers and tried to punish corporations for bad services, low quality & variety and too high prices (consumer welfare).  

Soon after Biden became President he changed the concept of antitrust and the leadership of the agencies that enforce antitrust in the US: The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ).

Biden announced Lina Khan, a radical left-wing, Chair of the mighty FTC and antitrust attorney Jonathan Kanter, another zealot, became head of the more than 800-person antitrust division of the Department of Justice (driveby ). Khan & Kanter belong to the Neo Brandeisian movement (named after Supreme Court Justice Louis Brandeis, 1916-1939 wikipedia). The Neo-Brandeisians declare consumer welfare as irrelevant and want to expand the government’s role in the U.S. economy significantly ( pbwt.com dailyjournal promarket reason). Khan`s FTC views large & successful companies as evil and prefers "that the government, rather than the private sector, orchestrates the functioning of the economy" ( .ftc.gov)

Biden protege Khan tries to expand her already extensive might. She argued - in an article for a Marxist paper - that antitrust must be reconfigured toward the redistribution of economic and political power and away from concerns regarding price (lpeproject  realclearpolicy). According to former FTC-Commissioner Christine S. Wilson Khan`s FTC represents a Marxist ideology and tries to replace the market process of supply and demand by a continuously regulated environment (ftc.gov ). Khan & Kanter started to sue Amazon, Google, Meta and other companies. They try to protect competitors, which are less efficient and successful. Even if Khan & Kanter lose, their law suits slow down decision processes in the economy and raise the costs of doing business considerably.

   Conclusion: America`s economic growth has been subdued because the Obama & Biden administrations both increased regulations. Trump´s trade war against China, which is continued and made worse by Biden, creates an additional headwind. Bad politics are holding growth back and are reducing the wealth of everybody.