Sadly -- and unnecessarily -- the persistent and prolonged failure to deliver higher and more inclusive growth has become a defining characteristic of the last decade in advanced economies. The harmful effects have extended well beyond economics and finance to include worrisome institutional, political and social consequences.
Indeed, we are seeing some of these factors play out this week in the heated debate over President Donald Trump's first budget. Without higher and more inclusive growth, the proposal is a fiscal non-starter, an institutional detractor, politically infeasible and socially destructive. Yet too much of the ongoing work on growth seems to fail to internalize fully the five main lessons from too many years of disappointments. As such, the analysis risks being either unnecessarily fatalistic or harmfully unrealistic.
For the last 10 years, the advanced world has been stuck in a troubling low growth equilibrium -- sub-2 percent annually. Making matters worse, the vast majority of the benefits of this already too low growth have accrued to the rich, which is worsening an alarming trifecta of income and wealth disparities and inequality.
This unusual period has taught us the first important lesson -- that advanced economies face not just cyclical headwinds, but also meaningful structural and secular ones. Moreover, in the absence of a sense of crisis, the required policy response is hampered by the difficulties that liberal democracies with short election cycles encounter when pursuing structural reforms -- a common feature of which is that the costs are immediate while the benefits come over time.
The second lesson is that it can take an agonizingly long period for policy makers and academics -- along with an overwhelming accumulation of on-the-ground evidence -- to change mindsets, models and operating approaches. Most damaging in this regard is resistance to the notion that, with the quest for high inclusive growth extending well beyond cyclical considerations to also include structural and secular factors, advanced economies could -- and should -- derive important lessons from the experience of developed countries. Even today, economists don't have a good understanding of what has been driving the rather unusual and unexpected behavior of productivity, investment and wage determination.
Third, it turns out that low and insufficiently inclusive growth entails a range of unpleasant consequences:
• Economically, it results not just in forgone growth today, but also downward pressure on future potential and, therefore, future prosperity.
• Institutionally, it fuels an erosion of trust and a loss of faith in "expert opinion," while also augmenting the pressure on the very few entities (in this case, central banks) that are able to respond, albeit using imperfect tools.
• Financially, the resulting policy experimentation -- such as ultra-low and, in Europe, negative interest rates, and large balance-sheet operations -- buys time, but does little to deal with the structural bottlenecks. Meanwhile, their prolonged use, and the resource misallocations that result, risk longer-term collateral damage and unintended consequences.
• Socially, a growing number of people feel a mix of disillusionment, marginalization, alienation and anger.