Everything Should Be as Simple as it Can Be, But No Simpler... (Attributed to Albert Einstein)

Pundits in January feared that the global economy had reached “stall speed.” Central Banks had done as much as they could to prop things up. At some point the world might turn in on itself for a major Recession.

Things look a lot brighter today. But what about the long term outlook for the U.S.? The chart at the bottom boils long-term growth down to two factors. The first is how fast the work force grows. The second is the growth in productivity or how many more widgets per hour workers can make. If you have more workers producing more per hour you are going to have long term growth. Very simple and very true.

Decade in and decade out the U.S. has averaged 1% to 2% growth in workers and also a 1% to 2% growth in productivity. Thus the conventional wisdom that 3% is our natural rate of real growth. The problem today, however, is that both work force growth and productivity growth have slowed down.

Robert Gordon at Northwestern University says this is no great mystery. The great inventions of the past 150 years like electricity, airplanes, vaccines, etc. have been fully mined. And what have ‘new’ technologies given us? Twitter and its 140 characters maybe? Not so fast say two MIT professors (Brynjolfsson and McAffee). Granted we haven’t yet seen technology completely kick in, but give it time. Remember it took electricity many decades to become a real productivity driver. Sothe question now is, are we stuck at 1½ to 2% long term growth or will we bounce back to the 3% ‘normal’ rate? I am an optimist but the future is yet to unfold. Stay tuned.