Why the Economy Doesn't Roar Anymore - WSJ - 1 views
www.wsj.com/...doesnt-roar-anymore-1476458742
economic Policy history theory productivity golden age
shared by Javier E on 16 Oct 16
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The U.S. presidential candidates have made the usual pile of promises, none more predictable than their pledge to make the U.S. economy grow faster. With the economy struggling to expand at 2% a year, they would have us believe that 3%, 4% or even 5% growth is within reach.
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But of all the promises uttered by Donald Trump and Hillary Clinton over the course of this disheartening campaign, none will be tougher to keep. Whoever sits in the Oval Office next year will swiftly find that faster productivity growth—the key to faster economic growth—isn’t something a president can decree.
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It might be wiser to accept the truth: The U.S. economy isn’t behaving badly. It is just being ordinary.
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Over the past two centuries, per capita incomes in all advanced economies, from Sweden to Japan, have grown at compound rates of around 1.5% to 2% a year
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these distinctly non-euphoric averages mean that most of the time, over the long sweep of history, people’s incomes typically take about 40 years to double.
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looking from one year to the next, the improvements in living standards that come from higher incomes are glacial. The data may show that life is getting better, but average families feel no reason to break out the champagne.
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that is no longer good enough. Americans expect the economy to be buoyant, not boring. Yet this expectation is shaped not by prosaic economic realities but by a most unusual period in history: the quarter-century that began in the ashes of World War II, when the world economy performed better than at any time before or since.
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The Golden Age was the first sustained period of economic growth in most countries since the 1920s. But it was built on far more than just pent-up demand and the stimulus of the postwar baby boom. Unprecedented productivity growth around the world made the Golden Age possible. In the 25 years that ended in 1973, the amount produced in an hour of work roughly doubled in the U.S. and Canada, tripled in Europe and quintupled in Japan.
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As millions of laborers shifted from tending sheep and hoeing potatoes to working in factories and construction sites, they could create far more economic value.
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New motorways boosted productivity in the transportation sector by letting truck drivers cover longer distances with larger vehicles. Faster ground transportation made it practical, in turn, for farms and factories to expand to sell not just locally but regionally or nationally, abandoning craft methods in favor of machinery that could produce more goods at lower cost.
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Six rounds of tariff reductions brought a massive increase in cross-border trade, putting even stronger competitive pressure on manufacturers to become more efficient.
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Above all, technological innovation helped to create new products and offered better ways for workers to do their jobs.
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The 1973 oil crisis meant more than just gasoline lines and lowered thermostats. It shocked the world economy.
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But it wasn’t the price of gasoline that brought the long run of global prosperity to an end. It just diverted attention from a more fundamental problem: Productivity growth had slowed sharply.
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The consequences of the productivity bust were severe. Full employment vanished. It would be 24 years before the U.S. unemployment rate would again reach the low levels of late 1973
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and the infinitesimal unemployment rates in France, Germany and Japan would never be reached again. Through the rest of the 20th century, the jobless rate in 28 wealthy economies would average nearly 7%.
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the world’s overall economic growth rate dropped from 4.9% a year from 1951 through 1973 to an average of just 3.1% for the balance of the century.
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With economic planners and central bankers unable to steady their economies, voters turned sharply to the right
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Conservative politicians such as Margaret Thatcher in the U.K., Ronald Reagan in the U.S. and Helmut Kohl in West Germany swept into power, promising that freer markets and smaller government would reverse the decline, spur productivity and restore rapid growth.
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But these leaders’ policies—deregulation, privatization, lower tax rates, balanced budgets and rigid rules for monetary policy—proved no more successful at boosting productivity than the statist policies that had preceded them
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Some insist that the conservative revolution stimulated an economic renaissance, but the facts say otherwise: Great Britain’s productivity grew far more slowly under Thatcher’s rule than during the miserable 1970s, and Reagan’s supply-side tax cuts brought no productivity improvement at all.
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It is tempting to think that we know how to do better, that there is some secret sauce that governments can ladle out to make economies grow faster than the norm. But despite glib talk about “pro-growth” economic policies, productivity growth is something over which governments have very little control