US Potential Growth

Gordon’s NBER paper (w19895) contrasts with Fernald and Jones’ (w19830), but both stink.  Growth per capita may not be equal to 2% in the future (figure 1). I agree that demography (age affecting participation rates) and educational attainment will be worse (figure 2). But that’s about it.

Fernald and Jones argue that research has gains from scale (external externalities), and there will be more PhDs from China. Also that robots may increase labor supply.

Gordon complains about inequality and the tax distortions needed to fix debt sustainability. Also data-mines an innovation slowdown and claims he can predict future TFP growth. Then arrives at some crazy 0.2% per capita growth (figure 3).

I’m much better than these guys. The right calculation is to get 2%, subtract .3% from aging, .2% from education, and another .3% because I'm in a bad mood, reaching 1.2%. That’s the per capita growth. Population will be growing .6%, which implies a potential GDP growth of 1.8%.