Growth

I googled why is economic growth slowing

• Why A New Wave Of Economists Are Championing Slow Economic Growth

  Unbridled optimism, unbridled pessimism:

  Some growth economists, like the University of Houston’s Dietrich Vollrath, say stagnation can actually be a sign of prosperity, an indication that a country has neared its ceiling for economic success, or shifted the material basis of its economy — say, from manufacturing to services. In this view, it’s not necessarily a bad thing if growth slows to a crawl during a stable economic period.

  Other economists believe that unending economic growth is not only misguided; it’s dangerous. Kate Raworth, an ecological economist at Oxford University's Environmental Change Institute, subscribes to the theories of environmental scientist Donella Meadows, author of the 1972 book "The Limits to Growth." Meadows said growth was a “stupid” goal — impossible to sustain — and a potential threat to the environment.

  Raworth and Vollrath concede that GDP growth was a fairly good metric for economic success through much of the 20th century, when GDP and more direct markers of economic health, like unemployment and median income, largely paralleled each other. But since the 1970s, GDP growth has become detached from material improvements for workers.

  Vollrath I know from his Growth Economics blog. He's sharp, he's funny, and he's interesting. Raworth I don't know, but I remember hearing about the Meadows book. It had a lot of authors, six maybe, and my source was quite impressed by the book. But this was years ago, long enough ago that years later -- but still years ago -- I gave up on the idea that we were reaching the limits to growth.

  Here's the thing. This is not a criticism of Vollrath and Raworth, for they only "concede" to the article's authors that GDP is no longer a good measure because "since the 1970s, GDP growth has become detached from material improvements for workers." 

  Yeah, "growth has become detached" and maybe that makes GDP a less useful measure. But the problem is not that we still use GDP; and abandoning GDP is not a solution. The problem is that the material improvement of workers is falling behind. This is the problem that must be solved. I'm saying something here that's so obvious it shouldn't have to be said.

• Slow economic growth is a sign of success
  

  This article is by Dietrich Vollrath, noted in the first article. Vollrath writes:

  In the US, GDP growth for 2019 was 2.3%, meaning it has been nineteen years since growth hit 4%, and nearly as long since it touched 3%. For the UK the story is similar, as it has been fifteen years since growth hit 3%... But the slowdown we’re observing isn’t something we can fix – or that we would want to fix – because the slowdown was never a consequence of things that went wrong.

  "The slowdown is a consequence of things that went right," Vollrath says. Two main factors, he says: "the fall in fertility during the 20th century, and the shift of our expenditures away from goods and towards services."

  Regarding fertility, Vollrath says for example,

  The opening up of many professions to women, along with growth in overall wages, meant that it made sense for many women to delay marriage.

  And he reaches the conclusion that 

  The growth slowdown today is a consequence of family decisions made decades ago in response to rising living standards and the expansion of women’s rights.

  That doesn't fit will with the change from one-worker families to two-worker families, which was in large part a response to declining living standards and the desire to maintain income. After all, "since the 1970s, GDP growth has become detached from material improvements for workers."

  Regarding the shift from goods to services, Vollrath writes "Productivity growth in services is lower than for goods", and
  

  If a restaurant — a service — tried to operate with half their normal staff, you’d complain about the slow service and lack of attention. In comparison, if a manufacturer produced a laptop – a good – with half as much labour, you’d never know. This makes productivity growth harder for services than for goods. As we shifted expenditures towards services, aggregate productivity growth was thus bound to fall.
  

  Maybe. But with greater demand for services, the demand for labor should be high, because (as Vollrath says) the restaurant can't operate well with half their normal staff. The growth of services should have created high demand for labor, and therefore lots of high-paying jobs. We don't have those jobs.
  

  Later in the article, he writes:

  If you’re still uncertain that the growth slowdown is a consequence of success, ask yourself what you’d give up to bring growth back to 4%. We could destroy half of all our goods: cars, couches, TVs, laptops, houses, trampolines, and so on. That would lead to a massive shift of spending towards goods as we scrambled to replace everything, and we’d see a jump in productivity growth.

  When I was a kid and we were getting 4% growth, people would buy a new car every three years. These days, we do that on a much smaller scale with iphones. And in Japan, I once heard, when the mortgage is paid off they tear down the house and build a new one. This "toss and replace" approach is definitely a way to keep the economy moving. "Ask yourself what you’d give up to bring growth back," Vollrath writes, expecting the reader to see the idea as foolish. And maybe it is. But when you keep the economy moving you generate jobs and you generate income. And when you don't, you don't.
  

• The U.S. Is Slowing Down And There’s Nothing Trump Or The Fed Can Do

   This article is by Raul Elizalde of Path Financial LLC. Elizalde writes:

  On our end, we looked at seven decades of GDP growth data to shed some light on the trend growth potential for the U.S. economy. After stripping out recessions, which can be caused to externalities that may not reflect productive capacity (such as oil shocks or a derivatives-based financial crisis) we calculated the 10-year average GDP growth rate. It shows a clear, steady decline ...

  A clear, steady decline of economic growth, Elizalde says, across seven decades.
  

• Why Does Economic Growth Keep Slowing Down?

  This article from 2017 is by Fernando Martin of the St. Louis Fed. The opening paragraph:

  The U.S. economy expanded by 1.6 percent in 2016, as measured by real gross domestic product (GDP). Real GDP has averaged 2.1 percent growth per year since the end of the last recession, which is significantly smaller than the average over the postwar period (about 3 percent per year).

  Slow recent growth, as noted by Vollrath above. 3% growth longer-term, as noted in Elizalde's article. And nothing about the good (4%) growth of the golden age that followed the Second World War.

  But then Martin shows a graph ("10-Year Averages of Annual Growth Rates") and says

  Long-run growth rates were high until the mid-1970s. Then, they quickly declined and leveled off at around 3 percent per year for the following three decades. In the second half of the 2000s, around the last recession, growth contracted again sharply and has been declining ever since.

  Fernando Martin knows growth in the golden age was high. He even points it out. But he says the same thing economists always say -- three percent -- as if it would be good enough if we could get back to 3% growth.

  But growth contracted sharply in the mid-1970s and "contracted again sharply" during 2005-2010. Maybe these two contractions are related? Maybe they have a common cause? What looks like growth "leveling off" at 3%, on his graph, manages to miss what Elizalde's graph shows: "clear, steady decline" in GDP growth.
  

Maybe we need to look back to when the economy was good and look for what went wrong. Maybe we should do that, rather than pretending 3% growth was the best we ever averaged and the best we might ever hope to achieve.