Tuesday, January 30, 2018

Jason Smith — 2.4% growth forever?

Mentions Stephanie Kelton.
In addition to trying to set up a framework to understand these phenomena for the future book, I also saw a tweet from Stephanie Kelton talking about the downward revisions of potential RGDP and potential NGDP both in level and growth rate [3]. She thinks that 2% growth going forward is too pessimistic -- saying we can get 3% growth. Now the model above says that the dynamic equilibrium is 2.4% (so I'd agree that 2% growth is a shade pessimistic, see [3]).

But there is never a period in the history where the US has achieved a sustainable RGDP growth above the 2.4% dynamic equilibrium rate where we have decent data. The 60s and 70s involved a major change in the civilian labor force (increasing the relative fraction of women in the labor force) that gave us 20 or more years of RGDP growth periodically above 2.4% coupled with bouts of sub-2.4% growth. The only other times of above-2.4% growth were during the dot-com and housing bubbles.

I'm not saying it isn't possible, but it would require something that hasn't been tried in post-war US history [4]....
Information Transfer Economics
2.4% growth forever?
Jason Smith

See also

Losing my vestigial monetarism

1 comment:

Noah Way said...

Continuous sustained growth is known by the medical profession as cancer.