James Forsyth James Forsyth

The next American economy

Obama’s $819 billion stimulus package has just passed the House, albeit without a single Republican vote. But too often lost from the conservation about the stimulus and how effective it will be is what the US economy will, and should, look like once this storm has been weathered. In short, where will the growth come from?

David Leonhardt has a fantastic piece in the upcoming New York Times magazine looking at this question. His argument is that education is the absolute key to this question. As he notes:

“The median male worker is roughly as educated as he was 30 years ago and makes roughly the same in hourly pay. The median female worker is far more educated than she was 30 years ago and makes 30 percent more than she did then.”

The piece has lots of interesting stats in it. Two stood out at me—one as a cause for optimism and one for pessimism.

First, the good news:

“Over the coming 25 years, if growth could be lifted by just one-tenth of a percentage point a year, the extra tax revenue would completely pay for an $800 billion stimulus package”

This does make one rather less concerned about the size of the stimulus. But then consider this:

“Annual economic growth in the current decade, even excluding the dismal contributions that 2008 and 2009 will make to the average, has been the slowest of any decade since the 1930s.”

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