A little over a week ago everyone from economists, bloggers, and politicians lambasted Tim Pawlenty for making his ridiculous claim that if he was president he’d achieve 5% economic growth for a decade. It’s nuts for a variety of reasons and Klein passed on a zinger from Alan Blinder:
Trend growth is three percent or so,” he wrote in an e-mail. “Five percent growth would be two percentage points higher, which should cut the unemployment rate by about one percentage point per year. So after 10 years, it will have fallen from nine percent to minus-one percent. Nice trick!
At the time, I thought the criticism was probably hyperbole designed to highlight the absurdity of Pawlenty’s idea – I wasn’t sure though. Now today Klein repeats Blinder’s remark and, at risk of looking foolish, I’m curious if it’s meant to be serious (even if “cheeky”). As Klein shares, the “speed limit” on the economic growth rate is basically the growth in productivity plus the growth in the labor force. Now, I realize that achieving that level of growth is completely unrealistic (and crazy to think a president can do anything that would directly cause it), but it doesn’t seem like it is impossible as Klein implies in multiple blog posts.
Sure, the labor force isn’t going to grow large enough without improbable immigration, but if the right mix of policy reforms coincided with a revolutionary invention that drove a sky-high productivity increase, couldn’t we achieve 5% growth for a decade without having negative unemployment?
Are Klein and Blinder just joking or is it actually impossible? If it is impossible, what am I missing?