POLITICS

Are we stuck in a “new normal” economy?

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Politics,Beltway Confidential,Michael Barone

Low growth may be here to stay.” That’s the dispiriting headline on one of Megan McArdle’s latest blogposts. Most Americans grew up in a country in which economic growth averaged nearly 4%. Now it seems like we’re stuck in an era—or at least a half-decade—in which growth has averaged 2%. That may not sound like much difference. But it is. Thanks to compound interest, 2% annual growth produces something like 19% growth over a decade, while 4% annual growth produces 48% growth over a decade. With 4% growth most people experience earnings increases over time and few people experience earnings decreases. With 2% growth lots of people experience earnings decreases and many fewer experience earnings increases—which tend to be smaller.

 

McArdle makes reference to Tyler Cowen’s e-book (now available in dead tree form) The Great Stagnation, which argues that we haven’t been having much in the way of productivity-increasing technological developments lately. And she paints a picture of the consequences for public policy if the new normal turns out to be the new normal—and it’s not a pretty one.

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