America's Missing Wealth: The Real Cost of Government Will Stun You

Forbes ^ | 10/07/2014 | Rich Karlgaard

[SeekAndFind]

“COMPOUND INTEREST is the eighth wonder of the world.” Did Albert Einstein say this? He should have. It’s true.

Few grasp compounding’s power. Or they do, but the need for quick gratification overwhelms their good sense. On the radio someone asks Dave Ramsey, the money guru with an avid following among the heartland’s middle class, whether it’s okay to take out a payday loan for special occasions. “Like what?” asks Ramsey. “Um, tickets to the state fair,” the caller answers. Now, understand that Ramsey is a debt hawk who hates credit cards. The idiocy of taking out a usurious payday loan for state fair tickets is like sending a plump pitch over the plate. “Were you born stupid,” Ramsey asks, “or do you try your best to act that way?”

Let’s ask that question of our federal government.

Suppose the U.S. economy, since 1949, were giving up 2% extra growth per year because of bad economic policy. Or, as Ramsey might say, because Presidents, legislators and unelected regulators were born stupid or try their best to act that way.

Now, 2% a year doesn’t sound like much. Most of us could spend 98% of our budget next year without too much pain. The quip about compound interest is noteworthy only because it would take a genius like Einstein to observe something so profoundly simple yet subtly opaque.

But run the numbers yourself–and prepare for a shock. If the U.S. economy had grown an extra 2% per year since 1949, 2014′s GDP would be about $58 trillion, not $17 trillion. So says a study called “Federal Regulation and Aggregate Economic Growth,” published in 2013 by Journal of Economic Growth. More than taxes, it’s been runaway federal regulation that’s crimped U.S. growth by the year and utterly smashed it over two generations.

[all the best]

Important. Thanks for posting.

[Alberta's Child]

I was about to criticize the author for one particular point, but then he acknowledges at the end of the article that the basic premise is very much a speculative one:

Am I guilty of positing ideal outcomes from all that extra wealth? Perhaps.

I don't know where he thinks the extra 2% -- or even 1% -- growth would have come from. An economy grows in one or both of two ways: growth in population and growth in productivity. Increases in population growth under different tax/regulatory structures probably shouldn't even be considered, as this country has demonstrated a willingness to allow a full-scale invasion by illegal aliens to ensure population growth.

This leaves productivity as the only means for higher growth. Does anyone really think that the dramatic improvements in productivity over the last 70 years could have been even better? Maybe so, but I'm trying hard to figure out how that would be the case.

[sasquatch]

Hey, It could have been 3 or even 4%

[Sgt_Schultze]

Yes, but trees don't grow into the clouds. Sure the economy would likely be larger, but it's probably more helpful to determine the per capita value of GDP and extrapolate to today's population. But just as importantly, a component of the GDP is all government spending.

GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M).
Y = C + I + G + (X − M)

So, one must first eliminate the explosion of activist nanny government from the preceding years growth to find out where normal government spending would have us today, before "truing" the adjusted anticipated GDP.

[AllAmericanGirl44]

bkmk