March 24, 2009
Dark Spot on the Horizon
Professor Mankiw picks up on a bleak datum in a great post about expected growth rates. Much has been made of the differential between CBO, White House, and private sector estimates. No one doubts that the growth rate will determine when and if we ever get out of this insane spending. But there is no shortage of dissent on the expected rates.
The CBO forecast includes -- and Mankiw highlights -- a somber thought:
Projected growth from 2015 to 2019 is also below historical average growth rates, a difference that is more than accounted for by slower growth in the labor force because of the retirement of the baby boom generation. Over the postwar period, the labor force grew at an average annual rate of 1.6 percent; by contrast, we project it to grow only 0.4 percent per year in the period from 2015 through 2019. As a result, potential GDP grew 3.4 percent per year on average in the postwar period, but CBO expects that it will grow by only 2.4 percent annually (allowing for a tad more productivity growth) in the 2015-2019 period.
No, we're not Europe yet -- but we are not postwar America either. The birthrate is unlikely to provide the labor force we will need to work out of the coming deficit.
Let the record show that I am not a demography-is-destiny guy or even a deficit hawk. But to ignore the economic ramifications of slower population growth -- at a time when it will be needed -- is careless. The two million HB-1 visas idea is looking better to me all the time!
Posted by John Kranz at March 24, 2009 3:46 PM