Perhaps It’s Not a Problem that the U.S. Is Growing Slowly

I’m not happy that the U.S. is growing slowly. But it’s my job to look at all sides of the debate.

There’s a phrase in sports called “winning ugly”. It means that you don’t look like you should win, but you win anyway. Casual fans don’t like “winning ugly”, but coaches and players are usually pretty OK with it.

Maybe, just maybe, the U.S. economy is winning ugly right now.

How would we know? Consider these graphs from Calculated Risk.

The blue is actual growth rates in the labor force, while the red dashed line has been smoothed. Our labor force isn’t growing as quickly as it was 40 years ago. No, duh. That was when the baby boomers were hitting the market in force, and now they’re retiring in force. And check out the previous post: labor force participation is down because retirees and students are up.

Now look at real GDP growth rates:

They’ve been trending down too, when smoothed.

Now superimpose the two:

The difference between the blue and red lines is productivity: how much is tacked on to labor force growth by capital accumulation and technological improvements. And it looks … pretty stable over the last 50 years.

The upshot of this is that if we’re fans of real GDP growth, then we’re going to be disappointed. But if we’re fans of per capita real GDP growth, then there’s no problem with America.

But it does mean that we’ll have to revise what we think is normal for real GDP growth. Perhaps the 2-3% under Obama is the new normal and that it’s not a bad thing.