March 27, 2016
I know that no one reads the Washington Post’s opinion pages for their insights on economic issues, but can’t we hope for at least some connection with reality. In his column today warning that productivity growth is likely to be weak forever more, George Will told readers:
“America’s entitlement state is buckling beneath the pressure of an aging population retiring into Social Security and Medicare during chronically slow economic growth.”
The entitlement state is “buckling.” If we tried to make sense of this assertion it presumably means that excessive spending on these programs is leading to high interest rates and/or high inflation. The problem is that we are creating more demand than the economy is able to supply. The only problem with this analysis is that long-term interest rates remain near post-World War II lows and inflation remains well below even the Fed’s unnecessarily low 2.0 percent target.
The only evidence the entitlement state is “buckling” from these programs seems to be the complaints from the folks at the Post and other Very Serious People. This does not appear to be a problem that exists in the real world.
On the more general claim about future productivity growth, which Will takes from Robert Gordon, it is worth recounting the past record of Gordon and other economists. There were three major shifts in productivity trends in the post-war era. There was a sharp slowdown in 1973, an upturn in 1995, and then a slowdown again beginning somewhere between 2005 and 2007.
No one saw the 1973 slowdown coming. More than forty years later there is no agreed upon explanation as to its cause. There were very few economists who saw the 1995 pick-up coming, although it is generally accepted that the information technology boom was its cause. Almost no one saw the slowdown coming in 2005-2007, and there is no agreement as to its cause.
Given the past record of economists (including Robert Gordon) in projecting the future path of productivity growth, we might be skeptical about a book that projects slow productivity growth for the indefinite future.
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