America at Yearend 2017 — Back From the Brink, Not Into the Abyss

World War I ended with the collapse of vast empires and the age-old monarchies that ran them. What kind of a new world would emerge from the imperial rubble? The poet William Butler Yeats was nothing if not pessimistic. In 1919, he wrote:

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the center cannot hold;
Mere anarchy is loosed upon the world . . .

Have we come to a similar breaking point in the world today, as some people think — an unfolding of events that leads not to peace and prosperity, but to ever-increasing discord and economic distress?

We reject this prognosis. We do believe, however, that the United States, as the leader of the free world, has come to the end of an epoch. We are witnessing the collapse of a long-ensconced cultural elite that has been exposed as bankrupt of either moral or intellectual virtue.

Free-market capitalism requires creative destruction. Failed businesses go away and new ones start. So too with failed visions. That is happening now.

At the Show-Me Institute, we believe the time is ripe for a resurgence of freedom…. and a return from moral relativism and endless self-flagellation over the supposed shamefulness of America — past and present — to a renewed appreciation of traditional values, including individual responsibility, hard work, and frugality (not just living within one’s means, but saving for and investing in the future).

Don’t look now, but the national economy is actually GROWING again

In each of the past two quarters of 2017, U.S. GDP grew at a rate of slightly in excess of 3 percent. If GDP continues to grow at the same pace or faster, it will mark an enormous turnaround for the economy as a whole.

Let us compare the economic legacies of two very different presidencies — both beginning with severe recessions lasting about two years.

During Ronald Reagan’s presidency, the recession was followed by six years of rapid growth. GDP expanded by more than a third. During Barack Obama’s presidency, the recession was followed by six years of anemic growth. GDP expanded by less than a sixth.

Above all, the Great Recession was an investment recession. In the first two years of the Obama administration, there was an astounding (and catastrophic) decline in net domestic private investment of more than 90 percent.

Why did that happen? Two reasons stand out —

First, there was a massive shift in resources from the private to the public sector — where scarce resources are much more likely to go to waste. Scorning “mindless austerity,” Obama promised to “spend our way out of the recession.”

In the course of doubling the national debt in eight years, his administration “invested” (or misdirected) billions of dollars of taxpayer money in renewable energy, electric cars, bullet trains, and other “new industries.”

At the same time, there was a huge expansion of the regulatory state — slowing growth in most existing industries, and deliberately killing growth in some, such as coal and petrochemicals.

The Trump administration has steered a much different course.

In its first year in office, the new administration delivered on its promise of sweeping regulatory relief. Rather than continuing to expand in leaps and bounds, the regulatory state actually contracted in 2017, thanks to the appointment of strong, reform-minded leaders at the Environmental Protection Agency, the Labor Department, the Department of Health and Human Services, and other arms of government. The appointments marked a true paradigm shift — and a great change for the better in clearing a path for faster growth.

At the end of the year, it also appeared likely that Congress would pass — and the president would sign into law — the first pro-growth tax cuts and reform since the George W. Bush tax cuts in 2001.

In mid-December, U.S. House and Senate negotiators appeared to be close to final agreement on a bill that would cut the corporate-tax rate to 21 percent from 35 percent while lowering the top individual income-tax rate to 37 percent from 39.6 percent on federal tax returns. These changes would take effect as of January 1, 2018.

2018 and Beyond

The portents seem to be in place for faster growth in coming years, including a surge in confidence among small business owners. Earlier this week, the National Federation of Independent Business (NFIB) reported that, according to its polling of its members, small business optimism now stands at its highest level since the roaring Reagan economy of 1983. “We haven’t seen this kind of optimism in 34 years, and we’ve seen it only once in the 44 years that NFIB has been conducting this research,” said Juanita Duggan, the organization’s president and CEO. “Small business owners are exuberant about the economy, and they are ready to lead the U.S. economy in a period of robust growth.”

Remember the talk in recent years of the U.S. entering “a new normal” of annual GDP growth of no more than 2 percent per annum? And remember the talk earlier this year of a possible deep recession or even depression?

Rather than plunging into the abyss, it seems that the U.S. economy has pulled back from the brink of long-term economic stagnation, and is ready to return the kind of growth last seen in the 1980s and 1990s.

Andrew B. Wilson, a long-time contributor to The American Spectator, is resident fellow and senior writer at the Show-Me Institute, a free-market think tank headquartered in St. Louis. Rex Sinquefield is the Institute’s president. 

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