by Bob Eisenbeis
A key factor affecting the future of the country—with major implications for both investors and public policy—is the growth potential of the US economy. Among economists, equilibrium potential GDP is vigorously debated. Are we in a “new normal” slow-growth environment. Is the current slow growth we are experiencing as we emerge from the Great Recession “as good as it gets?” What determines the US growth potential, and how can we best think about it?
Economists have focused on both the determinants of aggregate demand and the productive capabilities of the economy as determinants of the growth potential of our economy. Here I will focus on the supply side of the equation since many prominent economists are now arguing that there are limits to US firms’ ability to innovate and experience productivity grow. One preeminent scholar—Robert Gordon of Northwestern University—argues that we are not going to be able to sustain the kind of growth we have experienced previously.