From John Cochrane, where he begins by setting out the problem to be solved:

Sclerotic growth is the overriding economic issue of our time. From 1950 to 2000 the US economy grew at an average rate of 3.5% per year. Since 2000, it has grown at half that rate, 1.7%. From the bottom of the great recession in 2009, usually a time of super-fast catch-up growth, it has only grown at two percent per year. Two percent, or less, is starting to look like the new normal.

Small percentages hide a large reality. The average American is more than three times better off than his or her counterpart in 1950. Real GDP per person has risen from $16,000 in 1952 to over $50,000 today, both measured in 2009 dollars. Many pundits seem to remember the 1950s fondly, but $16,000 per person is a lot less than $50,000!

If the US economy had grown at 2% rather than 3.5% since 1950, income per person by 2000 would have been $23,000 not $50,000. That’s a huge difference. Nowhere in economic policy are we even talking about events that will double, or halve, the average American’s living standards in the next generation.

And then he makes the central point:

Over long periods of time, economic growth comes from one source: productivity, the value of goods and services each worker can produce in a unit of time. . . . Nothing other than productivity matters in the long run.

All good, and probably known to all. But then there is trying to identify the nature of what has been holding productivity back, and here I’m afraid he doesn’t quite go as far as he needs to. He has a list of also-run issues, in which he includes “fiscal or other stimulus programs”. If these are not part of the weed patch he describes, I don’t know what are.

Here is what I think the problem is. Governments think they can direct our resources more productively than businesses can, and what’s worse, that public spending will encourage business and business growth. It is surely not all of it but it is much of it. Public spending has a role to play, but governments are now spending our economies into the poor house. If you want to raise productivity, no answer that does not include cutting back on public spending will work.