In today’s Outside the Box my good friend Charles Gave shares an instructive ‘Tale of Two Countries.’ Since 1981 in the UK and France, structural growth rates have diverged: The rate has fallen by two-thirds in France, while in the UK it has risen. Why? Well, to begin with, in the UK Margaret Thatcher was elected prime minister in 1979 and almost at once reduced the role of the bureaucracy in managing economic activity and dialed back government spending as a percentage of GDP. Meanwhile, in France, Franois Mitterrand was elected president in 1981 on a platform that expressly aimed to expand the scope of government.
The effects on growth were predictable, says Charles, having been explained by Joseph Schumpeter in his 1942 book Capitalism, Socialism and Democracy.
More recently, in the US, when government spending as a percentage of GDP shot up from 33% to 39% during the Great Recession, our growth rate fell from 2.5% to less than one percent. And that, says Charles, is the story on US stagnation – not the more fashionable narrative of ‘secular stagnation.’
This post was published at Mauldin Economics on JUNE 21, 2017.