Growth Dy­nam­ics

The Economic Times - - Breaking Ideas -

We need to look back and get some per­spec­tive on US eco­nomic growth. We keep hear­ing that ac­cord­ing to the Pres­i­dent, we are just about to break out of a pe­riod of seven years when we have been on a 2% growth path, and get up in­stantly and ef­fort­lessly to 3% or 4%.

So, let me give you some num­bers in that con­text of 2% or 4%. For a cen­tury, from 1870 to 1970, the US econ­omy grew at close to 4%. That was a pe­riod pro­pelled by what I call the great in­ven­tions: elec­tric­ity and the in­ter­nal com­bus­tion en­gine. Elec­tric­ity made pos­si­ble elec­tric light. Ma­chines. El­e­va­tors. Sub­ways. The whole ur­ban den­sity that cre­ated pro­duc­tiv­ity as we moved off the farm.

The in­ter­nal com­bus­tion en­gine gave us mo­tor trans­port and air trans­port. We had a rev­o­lu­tion in speed, we had a rev­o­lu­tion in tem­per­a­ture con­trol. A rev­o­lu­tion in in­fant mor­tal­ity and life ex­pectancy. All of those things hap­pened in a very com­pressed pe­riod. Pri­mar­ily, re­mark­able changes hap­pened just be­tween 1890 and 1930.

Af­ter 1970,…growth slowed down from around 4% to close to 3%. And much of that was a de­cline in pro­duc­tiv­ity growth. Growth didn’t fall off as much as pro­duc­tiv­ity did be­cause we had very rapid growth in the labour force in the1970s,1980s and 1990s.… Our growth path over the last decade has only been 1.3%, well un­der half of what it was over the pre­vi­ous 35 years.

From “Can the US Econ­omy Re­cap­ture Its Past Growth?”

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