Progressivism is the cause of America’s missing growth
by Kevin Villani · The Washington TimesOPINION:
All democratic socialist policies require taking from some sort of source — from “the rich,” big business, landlords, health insurers, medical providers and anyone else politically designated a source of extraction.
Can this practice really provide the social justice proponents have promised, or does it quietly undermine the very working class that the left claims to protect?
From 1947 through 1970, according to the Bureau of Economic Analysis real GDP data, the United States grew at an annual average rate of 3.5%. Since 2000, real GDP growth has averaged 2.1% to 2.2% annually according to the bureau’s data, compared with the postwar expansion era. The difference may sound small, but compounding makes it enormous.
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Had the U.S. maintained its organic 3.5% growth path over the past 50 years rather than slowing to 2.2%, the American economy today would be nearly double its current size — and roughly 87% larger. The entire population would be roughly twice as rich.
Progressive policies caused the very problems they have been trying to solve for the past half century.
After World War II, despite massive war devastation — and with still-vivid memories of Weimar hyperinflation — West Germany built an economic miracle on a simple but powerful principle: Social ambition must never be allowed to overwhelm monetary and fiscal discipline.
Under its ordoliberal framework — the German school of thought holding that the state must actively maintain a competitive market framework — the country separated political desires from the hard constraints that make prosperity possible.
The German central bank, the Bundesbank, operated under a strict mandate for price stability, functioning as a synthetic gold standard. In the 1970s, when socialist politicians demanded loose credit to finance deficit expansions, the Bundesbank refused. It raised interest rates aggressively to protect the currency, even at the cost of political outrage.
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At the same time, the German Basic Law enforced decentralized fiscal accountability. If a local jurisdiction wanted to expand a social benefit, it could not look to a printing press or a federal bailout. It had to tax its own citizens directly. Social generosity was permitted, but only when citizens willingly paid for it.
Because West Germany maintained absolute monetary scarcity and localized fiscal responsibility, it protected its private manufacturing core: the Mittelstand, the network of small and medium-sized enterprises that form the backbone of German industry. From 1950 to 1989, West Germany’s real GDP per capita grew more than threefold, based on Maddison Project historical accounts, while East Germany fell further behind.
The difference in productivity — driven entirely by the pursuit of socialist income equality — explains the entire difference in economic growth.
There is no evidence that West Germany had greater potential, but real gross domestic product per capita climbed from roughly 28% of the U.S. level in 1950 to approximately 75% by 1989. The evidence for the superior East German growth model was ultimately exposed by the massive 2-trillion-euro multidecade fiscal transfers required after 1990 to rebuild, integrate and subsidize the collapsed East.
The only explanation is that U.S. fiscal architecture is more closely aligned with that of the former East Germany than with West Germany’s social democratic model.
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While West Germany used an ordoliberal referee to restrain its social ambitions, the U.S. spent the post‑1971 fiat era dismantling its own monetary and then fiscal discipline. After suspending dollar-to-gold convertibility in 1971, the Federal Reserve was free to monetize federal debts.
Wilsonian fiscal federalism removed the constitutional fiscal constraints on state and local governments. In the U.S., total federal transfer and entitlement spending directed toward income redistribution approaches $2 trillion annually. According to incentive-driven policy models, administering this system across federal, state and local tiers imposes hundreds of billions of dollars in direct administrative friction and fuels more than $1 trillion in unproductive state and local expenditures.
In the U.S., total federal transfer and entitlement spending directed toward income redistribution approaches $2 trillion annually.
Empirical models indicate that the fiscal drag of these policies fully accounts for the decline in U.S. productivity since 1970. The comparison of the U.S. to the old East and West Germany confirms it.
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The modern affordability crisis is not a market failure. It is the predictable result of policies that restrict supply, subsidize demand and expand administrative control.
When production is penalized and redistribution is rewarded, growth slows. When political allocation replaces market allocation, opportunity shrinks. When property rights are weakened, prosperity evaporates.
As the comic strip character Pogo put it, “We have met the enemy and he is us.”
• Kevin Villani is a California-based economist specializing in incentive‐driven policy analysis and institutional economics.
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