Thursday, January 21, 2016

The high-growth era is over

For 80 years, economists have argued that we can finance ever-expanding social programs from economic growth, and that growth will come from innovation and population.

These assumptions are wrong.

There will never be a century with the scientific, technological, and practical advances as the 20th (XXc). We will not see this sort of per-capita economic growth again.

You can raise GNP by increasing the population, but that is not sustainable. And if the increase is from immigration, then it does not help the natives.

The WSJ reports:
Most Federal Reserve policy makers and private forecasters are giving up on the long-awaited breakout and instead predicting little change in 2016 and beyond: an economy growing a little faster than 2%, just like it has for years.
“To tell a story of 3% growth at this point—it’s not that it can’t happen, but it’s unlikely,” said Joseph LaVorgna, the once-optimistic chief U.S. economist at Deutsche Bank. ...

Economists aren’t sure why growth has slowed down. Some argue it reflects powerful long-term trends affecting the U.S. and other advanced economies. Others point to temporary, if stubbornly persistent, headwinds generated by the financial crisis and recession.
You can read arguments for permanent slow growth in the book The Redistribution Recession: How Labor Market Distortions Contracted the Economy and in this pdf paper.

Update: See also NY Times article.
Americans like to think they live in an era of rapid and unprecedented change, but this kind of comparison — pitting the momentous changes of the mid-20th century against the seemingly more modest progress of our present era — raises a critical question about the nation’s future prosperity.

What does this portend for our well-being over the next half century? Has technological progress slowed for good?
Update: Paul Krugman writes:
Robert J. Gordon, a distinguished macro­economist and economic historian at Northwestern, has been arguing for a long time against the techno-optimism that saturates our culture, with its constant assertion that we’re in the midst of revolutionary change. Starting at the height of the dot-com frenzy, he has repeatedly called for perspective: Developments in information and communication technology, he has insisted, just don’t measure up to past achievements. Specifically, he has argued that the I.T. revolution is less important than any one of the five Great Inventions that powered economic growth from 1870 to 1970: electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine and modern communication.

In “The Rise and Fall of American Growth,” Gordon doubles down on that theme, declaring that the kind of rapid economic growth we still consider our due, and expect to continue forever, was in fact a one-time-only event. First came the Great Inventions, almost all dating from the late 19th century. Then came refinement and exploitation of those inventions — a process that took time, and exerted its peak effect on economic growth between 1920 and 1970. Everything since has at best been a faint echo of that great wave, and Gordon doesn’t expect us ever to see anything similar.

1 comment:

Weekend Yachtsman said...

Real growth happens when innovation and enterprise outrun the bureaucrats and regulators who inhibit it.

Now that the public sector has grown so much that it rivals, or in some cases exceeds, the size the productive economy, growth may never happen again.