The key to economic growth over the long haul is, in a word, productivity.
Getting more output for the same input or the same output for less input will result in much needed economic growth from what are simply referred to as productivity gains.
It's the KISS method at work in the real world, but it will work its 'magic' only if, as and when permitted to do so by the bureaucratic and status quo preferring political world and the public sector 'leaders' --- and the voters, of course. Therein lies the problem.
Simply put, productivity gains are the secret sauce that make countries and their citizens rich. These productivity increases, however, are inevitably driven by incentivized free individuals acting in a free private sector environment that rewards successes and penalizes failures. It's really that simple.
Another simple truth that is generally ignored is that the much sought after egalitarian outcomes touted by the unproductive public sector will never lead us to the required productivity improvements for a better life for one and all.
Think about the public sector unions and taxpayer funded, too big to fail U.S. postal service, or a nineteenth century looking traditional butts in the seat public school system, U.S. energy policy, or the government driven ObamaCare which continue to rule the roost in our otherwise current internet enriched, web based society. Doing so causes the lack of productivity issue to become painfully and expensively clear for one and all to see if we dare make the minimal effort to get to a better recognized reality.
The power of compounding is real and applies to economic growth disparities as it does to all other quantifiable things. Our economy is growing at the rate of less than 2% annually compared to its historic rate of more than 3% annually. That's a missed opportunity of epic proportions waiting to be seized.
That +1% per annum growth differential doesn't sound like much, but it's a huuuuuge one when the 'magic' of compound interest is taken into account.
Ending America's Slow-Growth Tailspin spells out the undeniable math for us:
"Sclerotic growth is America’s overriding economic problem. From 1950 to 2000, the U.S. economy grew at an average rate of 3.5% annually. Since 2000, it has grown at half that rate—1.76%. Even in the years since the bottom of the great recession in 2009, which should have been a time of fast catch-up growth, the economy has only grown at 2%. Last week’s 0.5% GDP report is merely the latest Groundhog Day repetition of dashed hopes.
The differences in these small percentages might seem minor, but over time they have big consequences. By 2008, the average American was more than three times better off than in 1952. Real GDP per person rose from $16,000 to $49,000. And those numbers understate the advances in the quality of goods, health and environment that came with growth. But if U.S. growth between 1950 and 2000 had been the 2% of recent years, instead of 3.5%, income per person in 2000 would have risen to just $23,000, not $50,000. That’s a huge difference.
Looking ahead, solving almost all of America’s problems hinges on re-establishing robust economic growth. Over the next 50 years, if income could be doubled relative to 2% growth, the U.S. would be able to pay for Social Security, Medicare, defense, environmental concerns and the debt. Halve that income gain, and none of those spending challenges can be addressed. Doubling income per capita would help the less well off far more than any imaginable transfer scheme."
Summing Up
The formula for success is a simple one, and it's a tried and true one as well.
New ideas generated by free individuals and tested in the free marketplace, and which eventually prove themselves to be new and better ways of doing old things, will make life better for one and all. That's the real American way.
Then the simple act of taking those successful and proven ideas and innovations and surrounding them with supporting systems or new ways of doing old things will result in outsized productivity gains for individuals, companies and society as a whole.
And to repeat, those productivity gains are the natural and inevitable result of free individuals testing new ideas which lead to innovations, and which often bring about step change levels in improving both the things that we do as well as how we do them.
Getting America back on track through private sector ideas and innovations is definitely doable and not all that complicated in the land of the free and the home of the brave.
That said, however, it's sure not politically correct to talk about such dangerous and profit driven endeavors these days -- in either political party. At least not yet.
But soon it will be.
That's my take.
Thanks. Bob.
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