The Factors Driving And Constraining US Economic Growth

For any economy to grow, one or more of the following things must occur: 1) The Workforce must grow, 2) Wages must increase, 3) Credit must expand and/or 4) Wealth must grow. In the latest Macro Watch video we look at each of these growth drivers and consider the constraints they will impose on economic growth in the United States during the years ahead. We also examine how they will limit the economic policy options available to the Trump Administration.

We find:

  1. A sharp slowdown in the growth rate of the workforce will act as a significant drag on economic growth for the foreseeable future.
  1. Credit to the household sector is stretched relative to income; therefore, credit growth will depend on increased government borrowing.
  1. Asset prices are stretched relative to income and, therefore, vulnerable to a correction, particularly if interest rates rise.
  1. US wages could begin to surge if President Trump implements his plans to sharply increase government spending on infrastructure and the military, while at the same time “brining the factory jobs back to America.” However, significant wage growth would cause a spike in inflation and interest rates that would cause credit and wealth to contract.

In recent decades, purchasing power in the United States increased because of credit growth and inflating asset prices – not because of wage growth. If President Trump now pushes up wages but causes credit to contract and asset prices to fall, then overall purchasing power will decline sharply and the economy will plunge back into severe recession.

Those are the hard economic constraints facing the new Administration. For all the details, Macro Watch subscribers can log in now and watch “The Factors Driving And Constraining US Economic Growth.”

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5 comments

  1. There will be a dramatic growth, I can promise, in the workforce. But it will be an artificial workforce. A.I and robots will in the next 10 years do more than everyone collectively did in the last 100. Factor that in.

    1. Interesting point. Rather than talking about the workforce, from now on perhaps I should talk about “the paid workforce”. It will be the paid workforce that matters. Unless the robots earn a salary, they won’t consume. Consumption accounts for 68% of US GDP. Growth in consumption is the thing that is needed most – as far as GDP growth is concerned.

      1. Bill Gates is calling for laws to ensure that robot replacements pay taxes.

        It is about time, in my opinion, that we collectively reap the rewards of automation. This was all supposed to save us time, but people are still doing 10 hour days at the office!

      2. The robots will not be earning a salary, but this where Basic Universal Income comes into the picture. It’s going to happen.

        Will it work? I don’t think so. Maybe an initial bump in consumption, but if you think through the ramifications it will utterly tear the fabric of society.

        https://www.theguardian.com/commentisfree/2017/mar/06/utopian-thinking-poverty-universal-basic-income

        https://futurism.com/4-bill-gates-thinks-countries-arent-ready-for-basic-income-yet/

        http://www.independent.co.uk/news/uk/politics/universal-basic-income-zero-hours-contracts-green-party-jonathan-bartley-a7609291.html

        http://www.wired.co.uk/article/universal-basic-income-utopia

        1. There is no alternative. When you order a pizza and it comes to your window in 3 mins by drone, and when you order a new part for your broken washing machine, and a local 3d printer spits it out in 3 mins, and when trucks drive themselves, when contracts are analysed by text analysers, when knowledge bases are available by voice query, when cars are entirely made by robot arms, and when everything you want is on tap, what kind of economy do you hope for?

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