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Eric Cantor's 5 Percent Growth Strategy

By Larry Kudlow - May 28, 2011

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And consider this: Between 1947 and 2000, average real economic growth registered 3.4 percent yearly -- an excellent prosperity baseline. Yet over the past 10 years -- amidst boom-bust Fed policy, a collapsing dollar and soaring gold -- the stock market on balance hasn't moved, as the economy has averaged only 1.7 percent annually. Because of the ongoing slump, actual real GDP growth from the early 2000s through the first quarter of 2011 has dropped nearly 17 percent below the long-run historical trend. That translates to a massive output gap of $2.7 trillion.

In order to close that gap in five years, the economy would have to grow 7.3 percent annually (roughly Reagan's two-year recovery rate in 1983-84). To close the gap in 10 years, the economy would have to grow near 5.3 percent annually.

All right, so why not establish a national economic growth target of over 5 percent? That might wipe out the current spirit of economic pessimism and decline.

A 5 percent growth target might give some hope to the roughly 15 million unemployed. Or the 12 million to 15 million homeowners who can't meet their mortgages, are in foreclosure or have upside-down property values. Or the disappointed investors who haven't made any real cash in 10 years. Or the families who are suffering from rising gas and food prices.

A 5 percent growth target might wipe out the sense that we can't seem to right the economic ship.

For all these reasons, according to the polls, jobs and the economy are the No. 1 political issue today. Entitlements are going to have to be fixed. But that day of reckoning is nearly 20 years away. Right now, folks want work and income to pay the bills.

The brilliance of Cantor's effort is his attempt to move the GOP back to the economic-growth high ground. It is our most urgent priority.

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Lawrence Kudlow is host of CNBC's The Kudlow Report and co-host of The Call. He is also a former Reagan economic advisor and a syndicated columnist. Visit his blog, Kudlow's Money Politics.

Copyright 2011, Creators Syndicate Inc.

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