Economic growth created our current state of economic grace. Deirdre McCloskey calls it The Great Enrichment. Jonah Goldberg calls it The Miracle. Both of them would agree, we think, that it wasn’t planned. After thousands of years of human life being short and brutish, in the past few centuries there has been a dramatic change in the quality of human life. The [economic] growth fairy visited, because of the miracle of compound interest (separate from Jonah’s Miracle), and left us with riches and resources that the richest folks from a century (and especially two) could not imagine.
As an example, Jules Verne published Around the World in 80 Days in 1873 (set the year before). The hero takes over, Wikipedia helpfully converts it into 2017 pound sterling, two billion pounds or about three billion dollars to make the trip. We will take the Lady de-Gloves to Changsha, China in a little over a day for about a thousand dollars (and another thousand for the round trip) in a few weeks. It is a nice comparison of how life has change in a century and-a-half. Ordinary people now can do far more than the rich could do ten or 15 decades ago.
Economic growth is crucial to our future well being. If the economy grows at one percent the compound growth over your child or grandchild’s 80 year life span is about 120% but at three percent it is about 960%. It is a big difference. It is important because the growth fairy has revisited the US economy after being away for a few years. The WSJ tells us:
The Commerce Department reported that the economy grew at a robust 3.5% in the third quarter, a mild slowdown from 4.2% in the second. Consumer spending led the way with a 4% increase rooted in a tight job market and wage gains that have bolstered economic confidence. The economy has now grown by 3% over the last 12 months. The U.S. economy hasn’t grown at 3% in a calendar year since 2005…
We, along with the WSJ, John Taylor:
When policy moves closer to those three attributes, as in the 1980s and 1990s for the advanced countries and more recently for emerging market countries, the economy does well, growing in a stable manner. When policy deviates from those three, as U.S. monetary policy did going into the tragic global financial crisis, the economy does poorly.
and many others believe in the growth fairy. We do not believe that we can eliminate economic cycles. Rather, we believe that good policy leads to, on average, better results and bad policy leads to bad results. There are numerous examples of bad policy with Venezuela being close to the worst possible policies. We think the WSJ is pretty close on its summary of good and bad policy in the US:
Can economic growth from tax reform and deregulation stand up to the headwinds from higher interest rates, tariffs and perhaps a Democratic Congress?
The WSJ position on interest rates isn’t clear. It seems like they are saying increasing interest rates are a problem but are they suggesting action to reduce them? We are with John on a rules based monetary policy rather than worrying about and trying to manipulate interest rates. So do you believe in fairies? This is one you really don’t want to die.