Limits

America’s output growth has lagged previous periods of prosperity since the June 2009 end of the Great Recession.  According to Mary C. Daly, a Post-Doctoral economist at the San Francisco Federal Reserve, this retarded pace is likely to endure.  In a speech given earlier this month, she reviewed America’s economic trajectory prior to the last contraction and rationalizes why a similar pace is not likely in the years ahead.

Before things start getting too dour in tone, let’s remember that America is enjoying its third-longest economic expansion ever.  Unemployment is low and consumption continues growing.  Additionally, our economy is beginning to digest the recent tax package which should be stimulative to output over at least the short-run.  Admittedly many (Atlas included) are concerned about the possible longer-term ramifications of such unfunded stimulus growing deficits beyond acceptable limits.  Nonetheless, our economy remains in a cyclical uptrend even in the face of more structural concerns.

Dr. Daly has a list of items she believes act as a drag on growth.  Fortunately, most of the list is (in her view) relatively inconsequential: excessive regulation, taxes, lack of competitiveness, etc.  However, she, like many economists, believes two issues have a considerable impact on output growth: productivity and the labor force.  Her research suggests productivity gains have been steady for decades, while labor force gains are not as even.  This could mean that the shape of America’s growth trajectory will likely mimic that of the labor force’s rate of change. 

Unfortunately, the projected growth rate for the labor force through 2025 is subdued according to the Congressional Budget Office.  For comparison, the labor force grew 2.7 percent a year during the 1970s but is expected to increase just 0.5 percent for the foreseeable future.  All else equal, America’s growth rate may have a limiter that even policy changes will struggle to overcome.  Time will tell.  We will continue monitoring those indicators which track productivity and the labor force to see if such strong headwinds do begin to develop.