New Study - Beyond the New Normal Part 4: Policy Mix Theory and Historical Evidence
America’s economy can return to the days of 3 percent and higher annual growth rates if Washington embraces pro-growth economic policies, concludes the latest installment of Pacific Research Institute’s Beyond the New Normal series released today.
“Nothing impacts America’s economy more than government economic policy,” said Dr. Wayne Winegarden, PRI Senior Fellow in Business and Economics, and co-author of Beyond the New Normal. “Reviewing 60 years of economic policies, we found that when government embraces policies that incentivize growth, our economy grows. President Trump and Congress can bring back the days of 3 and 4 percent annual growth by enacting a pro-growth agenda.”
In Part 4 of Beyond the New Normal, Wayne Winegarden and co-author Niles Chura analyze 4 key economic turning points where changes in the economic policy mix impacted the health of the U.S. economy (covering the periods 1958-1970, 1970-1982, 1982-2001, and 2001-2015). Following a historical review of the economic policy mix during each of these periods, Winegarden and Chura found that:
- Between 1958 and 2015, U.S. economic policy alternated between periods of expanding and declining government influence in the economy.
- Changes in the government’s economic policy mix – including fiscal and monetary policy – have impacted the health of the U.S. economy during these periods, alternating between times of weaker structural economic growth and robust structural economic growth.
- The Trump Administration would be wise to take a long-term economic view, embracing a policy mix that adds long-term value to the economy. They should avoid the temptation to use economic policy to manage short-term economic conditions, stimulate growth during recessions, or reduce growth during expansions.
- Policies that create growth-enhancing incentives, production efficiency, and prices that accurately reflect supply and demand encourage strong economic growth. These polices were in place during the 1960s, and the 1980s through the 1990s.
- In contrast, policies that distort prices, decrease the incentive to take risks, and increase government spending discourage growth. These policies have been in place since 2001, and were also prevalent during the 1970s.
Beyond the New Normal is a multi-part study by Dr. Wayne Winegarden and Niles Chura, which makes the case that future U.S. economic growth can meet –or exceed – past growth trends if the right economic policies are adopted.
Click here to read Part 1 of Beyond the New Normal.
Dr. Wayne Winegarden is a Senior Fellow in Business and Economics at Pacific Research Institute. He is also the Principal of Capitol Economic Advisors and a Managing Editor for EconoSTATS. Niles Chura is the founder of Ouray Capital.