What’s Really Behind America’s Slumping GDP Growth?

By Pam Martens and Russ Martens and cross-posted from Wall Street on Parade


On December 6, the Gallup organization together with the U.S. Council on Competitiveness published a jolting study demonstrating that the pervasive sense among Americans that the U.S. is in economic decline isn’t imagined. It’s real and it’s dangerous.

The study was conducted by Gallup’s Senior Economist, Jonathan Rothwell, with other Gallup experts and external scientists serving as reviewers to “ensure statistical and theoretical accuracy and objectivity,” according to Gallup Chairman and CEO Jim Clifton.

The problem, in a nutshell, is this: real Gross Domestic Product (GDP) per capita ran at a rate of 2.4 percent per year from 1929 to 1979. But since 2007, real GDP per capita has been a negligible 1 percent. Since the depths of the Wall Street crash in 2009, it has been a paltry 1.4 percent. (GDP per capita is the value of all goods and services produced in a country, divided by the number of people living in the country at the time.)

Jim Clifton adds this perspective in a letter attached to the report to drive home the point that America “is dangerously running on empty”:

“Think of our country as a company, America Inc., which has more than 100 million full-time employees, with about $18 trillion in sales and $20 trillion of debt. The most serious problem facing it is no growth.”

The study places the bulk of the blame for shrinking productivity on three sectors: healthcare, education and housing. Soaring costs and inefficiencies in these sectors are barriers to innovation and entrepreneurship, which in turn is holding back growth in GDP, according to the study. This analysis is offered:

“…the deterioration clearly links to specific regulations and inefficiencies created by government and industry practices that are entirely reversible. There is no inherent reason, for example, that the U.S. healthcare system needs to devote hundreds of billions of dollars to administrative expenses related to billing and claims processing, or that higher education now employs more professionals and executives than it does teachers, or that municipalities with the highest demand for housing refuse to allow multi-family housing to be built on under-utilized land. Eliminating these market barriers and the related waste and inefficiency would return the United States to rapid growth even without a spike in invention.”

Rothwell concedes in the study that there are widely divergent opinions among economists as to what is causing the low growth rate, writing:

“Another theory for why productivity growth has slowed is that demand for investment has fallen. Reviving a theory from the 1930s, Larry Summers has argued that the fundamental problem is a lack of investment opportunities. Summers provides few details as to why he thinks investment demand has fallen, but he argues that large-scale government-funded investment is a potential cure. Yet, weak demand for investment may be an effect of a still more fundamental change. Lower real wage growth, for example, would depress opportunities for businesses to form or expand, depressing investment. So, if Summers is right, the question remains: Why has investment demand become so weak? If consumers could afford to buy new goods and services, then businesses would have a strong incentive to invest in providing them.

“Macroeconomist Kenneth Rogoff has taken almost the opposite view of Summers, arguing that excessive debt is dragging down growth, resulting from the collapse of the housing bubble. Whereas Summers recommends increased government borrowing to fund investments, Rogoff argues this will exacerbate long-term problems.”

In our opinion, the one sector that should be singled out in any study of declining GDP growth in the U.S. is Wall Street. It has sacked the current and future prospects for the country in so many ways that it is beyond comprehension that any economic study on subpar growth wouldn’t first look in its direction

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