Constraints on Economic Growth


Many workers feel left out in today’s slow growth economy. Faster growth will improve their prospects by creating more and better paying jobs.
The private sector economist, Ruchir Sharma, warns however that faster growth will be hard to achieve.  He says that our relatively slow GDP growth of 2% per year since the end of the Great Recession has been caused by the Three Ds: depopulation, deleveraging and deglobalization.

In particular:

  • Depopulation. The baby boom caused explosive population growth after WWII. Even in the early 2000s the working age population in the U.S. was growing by 1.2% per year but is now predicted by the CBO to grow by only .5% per year in the coming years. More immigration, not less, would help in this respect.
  • Deleveraging. Since the Financial Crisis consumers have cut back on borrowing. Also the Dodd-Frank Act has restricted bank lending for business investment. Exempting small community banks from Dodd-Frank would help in this respect.
  • Deglobalization. Cross-border trade expanded from 30% of GDP in 1980 to 60% of GDP in 2008 but has since fallen back to 55% of GDP. Upon taking office President Trump immediately killed the Trans Pacific Partnership and is now renegotiating NAFTA. Any falloff in American export business will hurt economic growth.

In fact, there are countervailing trends. I have previously discussed evidence for the likelihood of faster growth based on the infusion of information technology into physical industries over the next 15 years.

Conclusion. The best way to improve employment prospects for the broad middle class, including blue-collar workers, is by making the economy grow faster. The constraints on faster growth are real but can be alleviated with sensible policies.

Follow me on Twitter 
Follow me on Facebook 

6 thoughts on “Constraints on Economic Growth

  1. An odd economic issue is the increasing numbers of male citizens who choose to exit the employable population. The evidence is that they may be undeclared disabled from chronic pain problems associated with prescribed narcotic use.

  2. I agree that a return to healthy growth could solve our employment problem, but it is interesting to consider alternatives.

    In 1939 some very brilliant American Economists composed “A Program for Monetary Reform” or the “Chicago Plan” for short. The paper advocated we transition to full reserve banking in which a Monetary Authority commissioned by congress (not banks) directly expands or contracts the means of payment in the economy.

    The idea is that growth shouldn’t match the increasing money supply, but rather the money supply should match growth. In other words, if growth is slow, the monetary authority can account for it by curtailing or reversing the expansion of means of payment. If growth is high, the monetary authority can expand the means of payment to meet the need for more money.

    Obviously, the Federal Reserve enacts monetary policy, but their impact on the actual supply of money is limited and slow. Deposit expansion and lending practices by banks (regulated by FR policy) result in the clumsy and uncoordinated expansion or contraction of our money supply that, in turn, inflates or depresses the value of our currency respectively.

    I would like to participate in an economy that can thrive with high employment in zero growth conditions, and I think that is possible with the proper monetary reforms. New deal programs and war initiated enough growth to pull America out of the depression, and in the wake of a recovering economy, the Chicago Plan was never brought to the people. It is available online, however, and quite an interesting read.

    • I would say that the Federal Reserve already has substantial control over the money supply, especially considering the current policy of quantitative easing.
      Economic growth depends on both increase of the working age population and increase of productivity. Overall world population growth is slowing down and so working age population growth ill also tend to slow down. But productivity can still increase based on technological innovation.
      Economic growth is critical to raise living standards for the middle class including blue-collar workers. This will be one of the most critical political issues in the foreseeable future.

  3. Word on the “proverbial street,” GDP growth, year over year, was 4.1% as reported by Altarum Institute’s Health Spending report for the 12 months ending in “June 2017.” AND, the WSJ reported this AM that for the first time in many years, all of the OECD economies were in a growth mode. Which means that the next recession will require a fundamental shift in the efficiency and effectiveness of our nation’s health spending in advance. Hopes and prayers will no long suffice.
    A community by community effort to augment its level of social capital will be required. The commitment should be locally driven and funded, regionally focused and nationally promoted with the national component limited to a budget of $1 per citizen per year. The goals for this strategy should be: 1) to reduce, slowly and progressively, our national spending on healthcare to less than 13% of the GDP AND 2) to reduce our nation’s maternal mortality by >70%, both within 10 years. .
    The DESIGN PRINCIPLES for Managing a Common-Pool-Resource, the portion of our national economy devoted to health spending, ARE KNOWN. Proposed and validated by Professor Elinor Ostrom, Nobel Prize honoree, along with many colleagues, already exist. A modern era, refined ‘Shoot The Moon’ effort will be required and could be up and running, 6 months after congressional action to charter a new semi-autonomous institution. To coin a phrase, this would not be ‘rocket science.’ A large portion, not all, of our nation’s expensive health spending is related to how each citizen takes care of their own health and helps the members of their family and neighbors care for each other. Building the basis for improving the character of how we care for each other must ultimately come from within a community wide commitment. Defining a community as 400,000 citizens, on average, nearly 800 Community HEALTH Forums would be required. The model already defined by the urban and rural Cooperative Extension Service for agriculture would apply.
    see for details.

    • $320 million per year to set up such a national community based healthcare system is dirt cheap. Promoting healthy living on a community by community basis is an excellent idea.
      I agree with you that the broad based economic growth now occurring in the developed world is likely to lead to a new recession before long. We need to act on fiscal and economic reform sooner than later.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s