By Susan Adams
On Friday, the Bureau of Economic Analysis announced that economic growth in the second quarter was 4.1 percent. That means that the average growth over the last five quarters has exceeded three percent. This is a level of growth that many critics said couldn’t happen. (In fact, former Obama White House Chief Economic Advisor Larry Summers said you’d have to believe in “tooth fairies” to believe that we could hit three percent growth.)
But what does this strong economic growth mean for ordinary people in Missouri and across the country? At the most basic level, economic growth is a reflection of our living standards. The faster it grows, the better we live (at least in economic terms). So this economic growth means we’re all richer. This is especially important for those living on fixed incomes, whose job skills may not allow them to increase their living standards through pay raises. While stock market growth is more important for the wealthy and upper middle class, economic growth is most important metric for ordinary people’s wellbeing.
At first glance, the difference between three percent economic growth and the two percent growth seen between 2009 and 2016 may not seem like much. But the power of compound interest actually makes it huge. With three percent economic growth, the economy doubles roughly every 24 years. At two percent economic growth, it doubles roughly every 36. That’s the difference between living standards tripling and just merely doubling over an average human lifetime. (At four percent growth, as we had last quarter, the economy doubles in just 18 years.)
Strong economic growth tends to coincide with strong labor markets and growing wages. And that’s exactly the case today. The national unemployment rate is hovering near a generational low of four percent. In Missouri, it’s 3.5 percent. For minorities, the national unemployment rate is the lowest it’s been on record. The strong job market is actually drawing people back into the labor force who had dropped out entirely because they had given up looking for work or became disabled. This growing workforce was a contributor to the strong economic growth numbers announced on Friday.
With such low unemployment, wages are being bid up. Median wages are growing at their fastest pace in a decade following years of stagnation. This is great news for ordinary people in the state and country whose paychecks will go further (as long as inflation stays in check).
So what’s causing this significant economic and labor market strength? Partially it’s just the continuation of a long bull market. But recently enacted federal tax cuts have added fuel to this fire. They have allowed businesses and individuals to keep more money in the private economy, where it can be put toward economic activity — rather than be sent off to Washington D.C. to be spent on vague federal programs and bureaucracy that are of little-to-no benefit for Missouri residents and our counterparts across the country. (Those who don’t live in Washington D.C., anyway.)
Consider my case. My husband and I own Adams Architectural Associates in Chesterfield. The tax cuts give us — and all small businesses — a new 20 percent tax write off, allowing us to protect one-fifth of our earnings from taxes. With this extra money, we are expanding our business into new product lines, hiring new employees, and raising wages. Multiply these actions by the 30 million small businesses across the country and you see why the economy is so strong.
Unfortunately, this common sense has been politicized in today’s hyper-partisan environment. But voters should know that a strong economy should not be taken for granted. It is a direct consequences of good public policy that allows Americans — not the government — to have more say in what they do with their earnings. As long as we have that control, we should have many more quarters of four percent growth to come.
Susan Adams is the Chief Financial Officer at Adams Architectural Associates in Chesterfield