The funny thing about a mirage is that it looks so real.

Photographer: Bill Pugliano/Getty Images

Jeb Bush and the 4 Percent Illusion

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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All presidential candidates promise great economic performance if they’re elected. After all, it would be silly not to make that promise. Everyone else is promising it, and if you get elected and fail to deliver, you can always blame outside events.

In the case of Jeb Bush, pie-in-the-sky economic promises are more than the typical overconfidence. They are the outgrowth of an idea that the George W. Bush Institute, a think tank founded by the former president, has been pushing for several years now. The idea is that there are policies the U.S. could enact to achieve a sustained real growth rate in gross domestic product of 4 percent. Unfortunately, and dangerously, this idea is pure hogwash.

The mirage of “4 percent” dates back at least to 2011, when conservative commentator James K. Glassman published an article in National Review titled “The 4 Percent Solution.” Glassman wrote:

America’s new economic organizing principle should be finding policies -- both public and private -- that can achieve a sustainable GDP growth rate, after inflation, of 4 percent annually. ...

In the realm of corporate taxation, that means lowering the income tax ... and ending preferences for favored industries. For personal taxation, it means enacting the consumption tax favored by economists of the Left and the Right, with a broad base and a low rate. ...

More quickly, the U.S. can move to increase its stock of human capital. ... A faster route to growth lies in better immigration policies. America needs more young, skilled workers, and the best way to augment the homegrown variety is with foreigners. ...

Freer trade, spurs to entrepreneurship, enhanced basic research and corporate R&D, reform of entitlements, elimination of obstacles to domestic energy production, more sensible regulation ... Pardon me if this sounds like an inexhaustible laundry list, but the exhilarating truth is that there are many ways to get America growing.

Glassman is no stranger to excessive optimism -- he is, after all, one of the authors of the 1999 book “Dow 36,000.” I’m afraid the 4 percent growth target is just as much of a mirage.

The historical record is not encouraging. As the Atlantic’s David A. Graham shows, growth higher than 4 percent has rarely happened in any presidential administration since World War 2. Bill Clinton’s second term, the biggest boom in recent memory, saw growth of just about 4 percent. Glassman is telling us that with the right policies, we can have late-1990s-style booms forever, despite an aging population, the topping out of education levels and the completion of women’s entry into the workforce -- all factors still in effect in the late ’90s.

Of course, Glassman would respond that his preferred policies haven’t been tried yet. The first problem with that is that a number of his policies are not even defined. “Spurs” to entrepreneurship? “Enhanced” basic research? “More sensible regulation”? These are campaign buzzwords, not policy proposals.

The second problem is that the concrete proposals are also unlikely to deliver sustainably higher growth. This is not to say that they are bad policies. Cutting the corporate tax is a good idea, as is improving education. But both of these policies are one-offs. They improve the efficiency of the economy, which leads to a spurt of higher growth, but the long-term trend in the growth rate won't change even in the most optimistic scenario.

Glassman’s only concrete suggestion that has any chance of delivering sustainably higher growth is higher immigration, especially immigration of highly skilled workers. We should do this. But immigration at historic highs in the 1990s and 2000s didn’t get us anywhere near sustainable 4 percent growth. And with fertility rates falling around world, and poor countries getting richer, the supply of immigrants might not be as inexhaustible as some think.

So Glassman’s 4 percent solution isn’t going to work. Unfortunately, the idea was picked up by the Bush Institute, which wrote a 2012 book of the same name. The “4 percent solution” is now official canon of the Bush family, and Jeb has taken up the banner.

I wonder if they realize that the name of the idea is a play on the 1976 Sherlock Holmes film “The Seven-Per-Cent Solution.” It referred to the solution of cocaine Holmes would inject to help him solve crimes; the movie is about Holmes going to Vienna to get Sigmund Freud’s help in breaking the addiction.

It would be good if our Republican politicians could break their addiction to the idea that the right set of structural reforms can sustainably boost our growth to turbocharged levels. In the end, the 4 percent solution will prove as illusory a high as Sherlock Holmes’ 7 percent version.

To contact the author on this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor on this story:
Stacey Shick at sshick@bloomberg.net