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March 31, 2010

Economist: Get Ready For Worst 20 Years of Subnormal Growth in All of American History

Decline?

It is an alarming, jaw-dropping conclusion. The U.S. standard of living, says superstar Northwestern University economist Robert Gordon in a new paper, is about to experience its slowest growth “over any two-decade interval recorded since the inauguration of George Washington.” That’s right, get ready for twenty years of major-league economic suckage. It is an event that would change America’s material expectations, self-identity and political landscape. Change in the worst way.

Now it’s not so much that the Great Recession will morph into the Long Recession. More like ease into the Great Stagnation. As Gordon calculates it, the economy will average only 2.4 percent annual real GDP growth over that span vs. 3 percent or so during the previous 20 years. On a per capita basis, the economy will grow at just a 1.5 percent average annual rate vs. 2.17 percent between 1929 and 2007.

That might not seem like much of a difference, but it really is. Over time, the power of compounding would create a huge growth gap measured in the trillions of dollars. To look at it another way, assume you had an annual salary of $100,000. If you received a 1.5 percent raise each year, you would be making $134,000 after 20 years, $153,000 after 40 years. But a 2.17 annual raise would boost your income to $153,000 after 20 years and $236,000 after 40 years.

The culprit, he says, is reduced productivity. The internet/computerization increase in productivity that grew the economy through the 90s and 00s is now at the point of greatly diminishing returns, and Obama's agenda isn't aimed at wealth creation, but merely wealth protection and wealth redistribution.

The thing is, few foresaw computer/communications technology goosing productivity for 20 years before it happened. There may well be some innovation we're not fully utilizing yet, or which has yet to be discovered, which will push productivity back up again.

Or: Maybe there isn't.



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posted by Ace at 03:44 PM

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