The chart above illustrates just how miserable economic growth has been in the current recovery. Instead of averaging just over 3% growth per year, as it did from 1965 though 2007, the economy has only managed a 2.1% annualized pace for the past 7 ¼ years. The gap between where we are and where we might have been had this been a normal recovery is a bit more than $3 trillion, by my calculations. That's huge, and that's the measure of our discontent.
An economy can't grow if businesses don't invest. As the chart above shows, capital goods orders—the seed corn of future productivity gains—have been flat to down for the past 5 years.
The chart above tells the same story from a different perspective. Fixed private investment has been much weaker in the current cycle than it was in prior cycles.
Businesses have been making huge profits during the current expansion (see chart above), but not investing nearly as much as they could have. If we want a stronger economy we need to find ways to encourage businesses to invest more. Lower taxes—especially the onerous tax on overseas profits—could do the trick, and so would reduced regulatory burdens. Corporations have parked some $3 trillion overseas that could be brought back if tax burdens were sharply lower.
As the chart above shows, private sector jobs growth has slipped to a 1.5% pace over the past six months. With weak jobs growth and virtually no productivity gains, the economy is simply not going to be able to do much better than 1.5-2% going forward.
Not surprisingly, the bond market has figured this out. As the chart above shows, the real yield on 5-yr TIPS is -0.3%, and that is consistent with expectations that economic growth will be stuck at around 2% or so for the foreseeable future.
The problem with Hillary—leaving aside for the moment things like the mounting evidence of corruption and influence peddling surrounding the Clinton Foundation thanks to her careless handling of her email server—is that she does not understand the importance of incentives to economic growth and prosperity (and neither did Obama). Trump does. For all his flaws, he would be much more likely to pursue policies that could close our $3 trillion gap. Can we afford to not give him a chance? We'll find out soon.