This post covers territory I’ve covered here before. It riffs to a certain extent on a theme I sounded in comments on a couple of posts by James Joyner over at OTB. The data in the graph above illustrates the real year-on-year growth in the U. S. GDP since World War II. The data are taken from the BEA.
I want to draw your attention to two important facts. First, the experience in growth over the last twenty years shows a markedly slower rate than prevailed over the previous twenty years or the previous forty years.
Second, the period since 1990 has included two bubbles: the dot-com bubble and the real estate bubble. Those bubbles are clearly evident in the peaks over the last twenty years.
In a comment at James’s post I suggested that in the coming years we were likely to experience growth more similar to that of Western Europe, where growth has typically hovered in the 2% range, than it did to levels of 4% or higher. A rather rude commenter there retorted that my claim was absurd. That the commenter apparently thinks that demographics and population size are synoymous is a subject for another time.
What forces could lead to growth at the 4% or higher level? Besides the unexpected which is just that, unexpected, I can only think of two. If you believe that we’re going to experience growth at a level higher than that of other developed countries you must either believe that we’re going to continue to experience a high level of immigration and/or that we’re going to continue to experience bubbles.
Immigration into the United States is overwhelmingly from Mexico. Many of those who adhere to the persistence theory believe we’ll see the high rate of immigration from Mexico we’ve seen over the last twenty-five years continue indefinitely into the future. That isn’t likely to happen due to Mexican demographics and economic growth in the United States and Mexico. For an illustration of why we’re less likely to see mass immigration from Latin America, generally, see here.
Will we have more bubbles? What’s the evidence for this?
Meanwhile, I’ll open the question up for comments. Do you think we’re going to see GDP growth in the U. S. at a rate of 4% a year or higher? Why?
It bears mentioning that many pension plans assume growth in their investment portfolios of 8% per year. If GDP growth is 2% a year, that would need a pretty darned good alpha.
When I re-read this post a couple of things occurred to me. The first is that I probably haven’t explained my emphasis on immigration enough. One of the factors in economic growth in the United States is almost certainly the increasing population. Our population is growing faster than Japan’s (Japan’s is shrinking), for example, which explains some of our economic growth, too. The birth rate is higher among immigrant women than among native born women here. If you remove immigrants and the children of immigrants from the picture, population growth in the United States resembles that of Western European countries much more closely.
The also appears to me to be a built-in assumption in the argument that ongoing population will continue to produce more economic growth rather than less growth. Not only do I believe that we’re likely to see less immigration into the United States over the next twenty years than we have over the last twenty but I strongly suspect that the next wave of immigrants (if there is one) is likely to be poorer and less educated, particularly relative to the structure of the economy, than previous waves.
Given that world demographics tells us that the fastest growing populations are in Africa and Asia, that’s where the immigrants are likely to come from too. I suspect that France and Germany will be the preferred destinations for the new immigrants rather than the United States. The soul-searching that’s going on in Western Europe today on this subject will be very telling in this regard.