Marco Rubio is absolutely correct: The U.S. budget deficit would shrink dramatically if the economy grew consistently at an annual rate of 4 percent. But economists from Bloomberg Government say achieving that kind of growth on a consistent basis is not in the cards.
“Rubio’s optimism about 4 percent growth during the next decade may be mathematically reasonable, but it’s not realistic,” according to a recent analysis by Christopher Payne, a senior economic analyst, and Robert Litan, director of research for Bloomberg Government. The analysis is for paying customers only.
In a blog post, Litan says achieving 4 percent economic growth would require a sustained increase in productivity (output per hour) that’s faster than the U.S. has managed for any extended period in the last 60 years.
Rubio, the Republican senator from Florida, argues that unleashing the economy from overregulation would allow it to grow much faster. He said in his GOP response to President Obama’s State of the Union address last month that the economy could achieve higher growth by opening more territory to oil, gas, and coal exploration; simplifying the tax code to make it easier for small businesses to expand and hire; lowering the corporate tax rate; promoting school choice; and reforming immigration.
Payne and Litan agree with Rubio on immigration. The main reason for the letup in projected economic growth, they say, is the slowdown in the growth of the labor force. Encouraging more immigration of high-skilled workers would boost the economy more quickly—and without any big increase in social costs. That, Payne and Litan argue, will make it easier for the U.S. to balance its budget. In their model, giving visas to an additional 75,000 skilled workers a year would add about 0.2 percentage point to the annual growth rate.
In an e-mail to me today, Payne writes: “I think one can assume that the skilled workers getting visas would not add to social spending.”