December 11, 2016
The Problems of Slow Economic Growth
It is economic forecast season. Most models, including mine, project economic growth for 2017 in the 2.0 percent range. This is the growing consensus among international forecasters and commercial firms as well. Most troubling, long-run forecasts say much the same for the next several years. If these forecasts are correct, the impact will have a significant impact on our culture, political and policy environment. Let me explain.
From the end of World War II to 2007 economic growth averaged more than 3.0 percent. Accounting for a population growth rate of a little over 1.0 percent meant that the American standard of living doubled every 25 to 30 years. This meant that the American expectation that our kids would enjoy a better standard of living than their parents was largely realized.
However, if growth stays at 2.0 percent, with a somewhat slower population growth, we can expect the standard of living to double every 60 to 70 years. At that rate, most of ours kids won't really experience noticeable increase in wealth and incomes over their lifetimes. This more than any other factor will serve to change what most of us have thought of as the American Dream.
It is foolish to suppose our Republic will avoid widespread anger and division if this comes to pass. It is worth talking about as we think about and how and why we may fix it, or adapt to these changes.
Now, clearly, economic growth doesn’t capture all that it good about our changing world. Our air is cleaner, our water clearer, and the world safer than at any time in living memory. These are valuable things, but are poorly captured by economic data. Likewise, our leisure choices are better than ever before, and have been enormously enabled by technology.
In some way things are so good in the US we’ve had to redefine hunger to include poor nutrition choices. We now label wireless telephony as a basic human necessity. Close to six billion people around the world live beneath the US poverty line, and few of them have access to Social Security, Medicaid, or SNAP (food stamps). Even the poorest Americans are upper middle class citizens of the world. We are an affluent nation in a world that has never been so affluent. The problem isn’t so much where we are, but where we are headed.
In past columns I have covered the debate on a technology and demographically induced slowdown. I am increasingly doubtful that either are the prime growth challenge we face. Rather, I think the problem is more a collection of many small things that will have to be undone rather laboriously. And, without condemning any individual policy, it is helpful to review the many things that aren’t occurring at historical levels.
We aren’t seeing new business formation or expansion at the rates of a generation ago. Overall, growth in educational attainment has been largely stalled for a generation, and growth of adult use of illegal drugs has doubled in a generation. Sadly, this leaves many adults who simply cannot be part of a modern economy. Family formation has changed in ways that threaten a growing share of our population. Children, and boys in particular, raised in single parent households do profoundly worse, on average, than those raised with two parents.
Finally, as technology changes, far too many Americans just cannot or do not adapt. That results in places with large numbers of unemployable men and women in the prime of their lives. None of these factors can be remedied simply or quickly, but they all slow economic growth and make it more unequal. Sadly, these seem to be among the many things that challenge use as we move into a world where economic growth has slowed to a dangerous level.
About the Author
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