In 2011, former Governor of Minnesota and Presidential hopeful Tim Pawlenty announced he had a plan to grow the United States’ economy by 5% annually. While he was praised by some for the bold assertion (one of the few bold moments of his short Presidential candidacy), many of his challengers and much of the media scoffed at this notion.
As California’s gubernatorial contest ramps up, one thing is certain: Jerry Brown, Neel Kashkari, or Tim Donnelly will not be promising 5% gross state product (GSP) growth for the Golden State. The simple reason: California has not enjoyed 5% real GSP growth since the dot-com boom, and current policy conditions suggest such a target is unreasonable.
Between 2002 and 2012, average annual real GSP growth for the Golden State was just 1.3% (0.2 points below the national GDP). Yet, is there a more reasonable target California’s gubernatorial hopefuls could strive to achieve? According to general consensus among economists, the ideal real growth rate (in an economy experiencing normal employment) is between 2.5% and 3% annually. Economists view this range as the right balance between increased economic activity and the risk of inflation.
If California could return to normal employment levels—the current unemployment rate is 8.3% compared to an average rate of 5.9% during the last expansionary period (December 2001 to December 2007)—the ideal range is attainable for California. Between 2002 and 2008, in the lead up to the Great Recession, average annual real GSP growth was 2.2% and as recently as 2012, real GSP growth was 2.8%. However, as the charts below show, economic growth is not consistent across the diverse Golden State.