Economix Blog: A Dismal Outlook for Growth

They don’t call it the dismal science for nothing.

In a new paper, the Northwestern economist Robert J. Gordon argues that the United States should get ready for an extended period of slowing growth, with economic expansion getting ever more sluggish and the bottom 99 percent getting the short end of the (ever-slower-growing) stick.

“A provocative ‘exercise in subtraction’ suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades,” he writes.

To put that in context, American households’ real consumption expanded by about 3 percent a year before the recession hit and has been growing about 2 percent a year during the recovery, according to statistics from the Organization for Economic Cooperation and Development.

Mr. Gordon’s paper joins a growing economic literature that seeks and fails to find new sources of bang-up growth. (See Tyler Cowen’s wonderful “The Great Stagnation” for more on that.)

In the past, the United States economy grew quickly and its citizens got richer, in no small part because of advances made in three consecutive industrial revolutions: steam engines and railroads first; electricity, indoor plumbing and the combustion engine second; and the computing revolution third.

But the productivity and income gains begot by that third revolution have not been as impressive as the productivity and income gains from the first and second, he writes. Moreover, the United States is facing a number of headwinds. We’ve gotten most of the gains from the “demographic dividend.” Inequality is rising. Higher education is getting more costly, and student performance waning. We have high levels of government and household debt. And we have taxes and regulations stifling innovation and businesses.

That leads Mr. Gordon to question the notion that growth is a “continuous process that will persist forever.” We might not stop growing. But he argues we will stall out.

“Doubling the standard of living took five centuries between 1300 and 1800. Doubling accelerated to one century between 1800 and 1900. Doubling peaked at a mere 28 years between 1929 and 1957 and 31 years between 1957 and 1988,” he writes. “But then doubling is predicted to slow back to a century again between 2007 and 2100.”

Of course, there could be revolutionary new sources of growth: from the singularity, maybe, or a new renewable energy source. An article about “The Next Great Growth Cycle” also has some good pushback on the doom-and-gloom economic narrative.

Article source: http://economix.blogs.nytimes.com/2012/08/28/a-dismal-outlook-for-growth/?partner=rss&emc=rss