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What If US Economic Growth Is Over?

November 12, 2012

The crux of his argument is that we are now in the aftermath of the third industrial revolution the information technology revolution. While we may marvel at the seemingly constant stream of new tech devices springing from this latest revolution (iPad Mini, anyone?), these new innovations tend to enhance entertainment, not productivity, he asserts.
-Russ Koesterich, global chief investment strategist, iShares

Ive called US growth anemic, but Im an optimist compared with Northwestern Economics Professor Robert Gordon. If hes right in his provocative new paper Is US Growth Over? Faltering Innovation Confronts Six Headwinds, investors may be grossly overestimating how fast the United States is likely to grow in the coming decades.

While the United States has been stuck in a slow growth mode since the end of the recession and arguably even going back to 2000 Gordon argues that that this period of slow growth could last much longer, and actually get worse. His basic thesis is that consumption growth, which is the primary driver of US economic growth, could fall below 0.5% annually for the bottom 99% of the income distribution. More frightening, he believes that this period of essentially no growth could last for decades. The part that I found the most interesting was his assertion that productivity growth will slowly grind to a halt.

The crux of his argument is that we are now in the aftermath of the third industrial revolution the information technology revolution. While we may marvel at the seemingly constant stream of new tech devices springing from this latest revolution (iPad Mini, anyone?), these new innovations tend to enhance entertainment, not productivity, he asserts.


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