🖤 Donations of all sizes power our public service journalism Give Now

A recipe for economic slowdown

Marketplace Staff Dec 13, 2006

A recipe for economic slowdown

Marketplace Staff Dec 13, 2006


SCOTT JAGOW: Perhaps you’ve heard the phrase “economic populism.” There’s been a lot of talk about it with the Democrats taking over Congress. They describe economic populism as using government to help regular people. So, for example, doing more to protect American jobs. But conservatives see “economic populism” as a recipe for a stalled economy. Here’s commentator David Frum:

DAVID FRUM: Last week, former Treasury Secretary Bob Rubin stopped by to talk to the new House Democratic caucus.

They reportedly peppered him with angry questions as he urged free trade, balanced budgets, and increased national saving.

They attacked imports, big box stores, outsourcing and the construction of new highways to Mexico.

I’m sure Rubin gave as good as he got, but over the past few years, some mainstream Democrats have made their peace with economic populism. How much harm, they figure, can a little protectionism and redistribution do?

Well, let’s try to answer that question. Let’s suppose they cost just half a point of economic growth.

That would knock the U.S. down from, say, an educated guess of 3 percent annual growth over the next five years to a still respectable 2.5 percent.

What difference would that make?

The U.S. economy generated about $12 trillion worth of goods and services in 2005. Half a point of that is worth about $67 billion, about the GDP of the state of New Mexico.

One New Mexico more or less is important in itself, but if you lose growth, you don’t just lose it once, you lose it again and again year after year.

A comparison makes a point: According to World Bank estimates, in 2005 the U.S. economy outweighed China’s by a margin of 6 to 1.

Suppose for the sake of argument that China’s economy were to continue to grow at the 9 percent rate of recent years. Twenty years from now, America would still lead China by an impressive 2 to 1. But if America’s growth slips by only half a point, the U.S. advantage over China in 2025 narrows to only a little better than 3 to 2.

Half a point, but the political fate and economic fortunes of nations and planets can turn on such small differences.

JAGOW: David Frum is a former speech writer for President Bush and a resident scholar at the American Enterprise Institute. In Los Angeles, I’m Scott Jagow. Thanks for tuning in and have a great day.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.