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CBO forecasts 1.7% annual productivity growth in the 2020s but some arguments suggest > the 3% in 1996-2004
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View above about Model Issue: 10-year US real GDP growth conditional on Low risk aversion
Conditions are ripe for productivity to remain elevated for years to come, according to analysts from Goldman Sachs and the McKinsey Global Institute. As policymakers run the economy hot, there’s heavy demand for products and services. There is also a worker shortage, which is forcing companies to innovate even more as they struggle to find enough employees to fill a record 10 million job openings. If a robot can do someone’s job, companies are trying it.
Some economists even say the United States could be on verge of a productivity boom not seen since the late 1990s.
“America used to do a lot more public investment and it used to grow faster. I don’t think that’s a coincidence. It seems like we are reentering an era of public investment,” said professor Erik Brynjolfsson, director of Stanford University’s Digital Economy Lab. He forecasts “a productivity surge that will match or surpass the boom times of the 1990s.”
Worker productivity averaged 3.1 percent from 1996 to 2004, according to Labor Department data, largely due to the personal computing revolution.
Economists have learned that new technological breakthroughs usually don’t cause a jump in productivity right away. The technology needs time to marinate so companies can test how best to deploy it in their industry. Brynjolfsson argues artificial intelligence and machine learning have now simmered long enough to make a dramatic difference. Others are not as convinced.
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IMF research shows real GDP growth suffers when inflation is > 3%, so we judge real growth outlook will decline if LT inflation outlook >=4%
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View above about Model Issue: 10-year US real GDP growth conditional on Low risk aversion
For economies with initially low rates of inflation, modest increases in the rate of inflation are associated with higher long-run rates of real growth. But for economies with initially high rates of inflation, further increases in the inflation rate have adverse effects on real growth. Furthermore, the threshold rate of inflation is fairly low--around 1-3 percent for industrial countries, and 11-12 percent for developing countries.
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