Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
How the US Economy Can Counter Its Demographic Headwind
The excellent 2016 book The Rise and Fall of American Growth by Northwestern University economist Robert Gordon — a book I frequently write about — is often portrayed as a work of technological pessimism. But Gordon doesn’t see it that way. Tech progress and innovation, as eventually reflected in productivity growth, isn’t going to slow in his view. It will pretty much continue as it has for decades — just no acceleration to the boomy 1920-1970 productivity pace due to advances in AI or robots or medical miracles. The demise of rapid economic growth is due to various “headwinds,” he argues, not technology. Not only will those factors slow per capita GDP growth, but much of that growth will be captured by wealthier households. Indeed, inequality is one of Gordon’s headwinds.
Another growth constraint, according to the economist, is demographics. This is uncontroversial. All those baby boomers are heading into retirement, and Americans are having fewer kids. Labor-force growth used to be so rapid — especially with women entering the job market as never before — that overall economic growth stayed fast even as productivity growth weakened. A San Francisco Fed analysis in 2018 noted the following:
In the 1970s, labor force growth alone contributed 2.7 percentage points to GDP growth, meaning that even if productivity growth had been zero, the economy would have expanded at 2.7%, slightly faster than the pace of our current expansion. Since that peak, labor force growth has come down substantially. As the forecast for 2025 shows, labor force growth is expected to remain stuck at 0.5% for the next decade. This means that, absent a surge in productivity, slow growth in the labor force will be a restraining factor on the U.S. economic speed limit.