Is slow economic growth the new normal? Not necessarily, according to an October policy analysis from the Cato Institute, but growth has become more difficult.
Cato Senior Fellow Brink Lindsey points to four components of economic growth: labor participation, labor quality, capital investments, and "total-factor productivity," a measure of output for each unit of work. Historically, the fluctuation of these measures has been balanced: When some measures went down, others went up.
But recently all the components of growth have slowed simultaneously. People have been dropping out of the work force since 2000. Educational attainment levels are stunted by high-school graduation levels lower than they were four decades ago. Physical capital investments have slowed, and total factor productivity growth has declined since the 1990s.
Lindsey argues that slow growth in each of these areas is likely to continue, resulting in continued slow economic growth, if present policies continue. Today's public policy infrastructure, he writes, is "rife with barriers to entrepreneurship, competition, innovation, and growth," not to mention subsidies that tilt the playing field in favor of incumbents, complicated and poorly designed tax rules, and legal mechanisms that obscure price signals. Lindsey argues that changing these policies may be the easiest way to give the economy a boost.
Alternatively, slower economic growth might just be what more Americans prefer. "A slowing economic growth rate is not a problem," Lindsey writes, "to the extent it reflects shifting individual preferences."