Why It Is Hard To Raise The Rate Of Economic Growth

See Why Trump can’t be Reagan: Economic plan of reviving a 1980s style boom in America is pie in the sky Ruchir Sharma.

"The potential growth rate of an economy is roughly determined by two factors: population and productivity. An economy can grow steadily only by adding more workers, or by increasing output per worker. During the Reagan years, both population and productivity were growing at around 1.7% a year, so the potential US growth rate was close to 3.5%. In short, Reagan did not push the nation’s economic engine to run faster than it could handle." [I would add that more capital or better technology can also increase the output per worker-CM]

"America’s population and productivity growth have fallen to around 0.75% each, generously measured, so potential economic growth is roughly 1.5%. Any policy package that aims to push an economy beyond its potential could easily backfire – in the form of higher deficits and inflation.

In the last 1,000 years, no economy has ever broken free of the limits imposed by population growth. Before 1870, global population growth did not exceed 0.5%, and global economic growth did not exceed 1% for any sustained period. Before World War II population growth increased to 1%, and economic growth accelerated to about 2%. After the war, the baby boom pushed population growth towards 2%, and economic growth rose to nearly 4% for the first and only time."

"global population growth has fallen to about 1%. The baby boom has gone bust. With the US population growth rate falling – last year to the slowest rate recorded since the 1930s – it is unlikely that any president could juice the economy to grow at 3.5% or more over the next decade."

"let’s assume Trump can more than double US productivity growth to the rate achieved in the Reagan era, 1.7%. Given the slowdown in population growth, that productivity miracle would raise the potential GDP growth rate to around 2.5%. If that doesn’t sound so different from 3.5%, consider that every percentage point of growth in the domestic economy is worth more than $100 billion"

"Not every country with rapid population growth enjoyed a steady economic boom, but few economies boomed without it. And for most countries, the era of population growth is now over."

"Comparing growth in the US unfavourably to China and India, as Trump has, makes little sense because poorer countries always tend to grow faster. If your starting income is lower, it’s easier to double it."