130928

　　GUEST BLOGGER Robert J. Gordon

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　　SERIES

　　In August 2012 the noted American economist Robert J. Gordon raised the deliberately provocative question “Is U.S. growth over?” After much debate among economists, Gordon has updated his argument in a recent paper, which this Series provides.

　　The first Post showed how growth SLOWED between the periods 1891-1972 and 1972-2007. This Post analyzes HEADWINDS facing attempts to revive growth. The third Post will reiterate that those Headwinds are likely to offset future technological INNOVATION.

　　All this should greatly interest Chinese. If future USA growth remains slow, that will strongly affect the PRC. To some extent the future of USA growth will also become the future of PRC growth, eventually. Chinese may wish to do similar analysis of China’s own growth.

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　　OVERVIEW

　　DEMOGRAPHY 1

　　EDUCATION 2

　　INEQUALITY 3

　　REPAYING DEBT 4

　　GLOBALIZATION 5

　　ENERGY/ENVIRONMENT 6

　　HEALTH INSURANCE 7

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　　 130928

　　 IS AMERICAN ECONOMIC GROWTH OVER? HEADWINDS

　　 Robert J. Gordon

　　 Northwestern University and National Bureau of Economic Research

　　[This Post has been excerpted by Winckler from Robert J. Gordon 2013 “ ‘Is U.S. growth over?’ One year later. Reinterpretations, criticisms, and reflections.” Prepared for 11th Annual Conference, Center for Capitalism and Sociey, Dynamism and innovation in the West: Has decline set in? Columbia University, New York City, September 16, 2013. Here a few simplifications and explanations by Winckler appear in brackets. Much of the OVERVIEW section has been moved forward from later in the discussion of Headwinds in the 130916 paper. Non-technical readers can follow the main argument through key statements that Winckler has bolded. More technical readers may wish to attempt similar analysis of Chinese economic growth. REFERENCES for all three Posts were attached to the first Post in this Series. Gordon’s August 2012 paper was summarized in this Blog in its first Post, 130105, Section 3.3.]

　　OVERVIEW

　　The initial [August 2012] paper emphasized the contrast between IR #2 and IR #3 [the Second and Third Industrial Revolutions], providing many arguments why the set of inventions that created a new world between 1870 and 1970 could not be repeated. The role of the headwinds in providing further reasons for a growth slowdown was added at the end. This sequel reverses this ordering, since the headwinds turn out to be more important than the pace of innovation. This restatement reaches the conclusion that there is no need to forecast any “faltering” of future innovation, as the downshift to slower rates of innovation-driven productivity growth already happened 40 years ago. The pace of innovation over the next four decades must keep up with the last four to support the forecasts contained here, however pessimistic they may seem

　　[This Post reviews the role of each of seven HEADWINDS in retarding future economic growth, regardless of the future rate of technological Innovation. The four main Headwinds – difficulties in Demography, Education, Inequality, and Repaying Debt -- suffice to reduce projected growth to less than half (from 2.0 to 0.8). Those Headwinds are relatively easy to isolate and measure. At least three more Headwinds involve difficulties in Globalization, Energy/Environment, and Health Insurance. Those Headwinds are harder to isolate and measure. Therefore – because they are not essential for demonstrating that future growth may be slow – here we provide only a brief qualitative discussion.]

　　[Figure 4 provides an overview of the main argument.] Starting from the 2.0 percent annual growth rate of real per-capita GDP between 1891 and 2007, [in round numbers] we [will subtract] 0.2 percentage points for demography, 0.3 for education, 0.5 for inequality, and 0.2 for future fiscal corrections. This [will bring] the total down to 0.8 percent [annual growth] even though no mention has yet been made of innovation or productivity growth. These four headwinds alone are sufficient to cut likely future U. S. economic growth by more than half, again with the careful qualification that this future projection refers to the disposable income of the bottom 99 percent of the income distribution, not the average per-capita income of the nation as a whole. [The slowdown in Innovation since 1972 further reduces expected growth, from 0.8 to 0.2.]

　　We started with the green projected line growing at 2.0 percent per year. This was sufficient to bring the level of real per-capita output to $184,000 in 2077. Now, with the adjustment for the four headwinds, the 2077 projection is a much lower $76,752.

　　[The blue and purple lines in Figure 4 take] the extrapolation of the past 2.0 annual growth rate of output per capita over 1891-2007 and subtracts -0.22 for the more rapid future rate of decline in hours per capita relative to the past, and the -0.27 decline in the contribution of education. These two headwinds alone suffice to reduce the future growth rate of output per capita from 2.0 to 1.5 percent per year. We started with a 70-year projection from 2007 to 2077 at a 2.0 percent rate, causing real GDP per capita to quadruple to $184,000 by 2077. The downward adjustments for the demographic and educational headwinds reduce the prospective level of 2077 real GDP per capita to $125,283. [The brown and black lines in Figure 4 further subtract 0.5 for Inequality and 0.2 for Repaying Debt. Cumulatively that lowers lowering our projection of 2077 real GDP per capita to $88,286 and $76,752 and reduces the future growth rate of output per capita to 0.8 percent per year. Thus the black line is our pessimistic projection, taking all four main headwinds into account. Again, the slowing of innovation after 1972 further reduces expected growth to 0.2. We now discuss each of seven Headwinds in turn.]

　　DEMOGRAPHY 1

　　A standard assumption in every economic forecast is that the retirement of the baby boomers will reduce hours per capita independently of any other cause of a change in the hours-per-person ratio. The denominator of the H/N ratio is the population aged 16 or greater. Whenever a person retires, he or she remains in the population (which goes from 16 up to the longest-lived American) while making a transition from positive to zero hours of market work. The baby-boom retirement phenomenon matters because of the bulge in the population consisting of people born between 1946 and 1964. The 1946 babies were eligible for early Social Security status at age 62, that is in 2008, while the oldest group born in 1964 will be eligible for full benefits at age 70 in 2034. That period, 2008-2034, represents a full quarter of a century in which baby-boom retirement will drag down hours per capita.

　　But that is not all. Even if the future [un]employment rate returns to its 2004 value of 5.4 percent and the employment rate returns to 94.6 percent, there will still be downward pressure on the other two components of hours per capita, namely hours per employee and the labor-force participation rate. The former has been pushed down in part by America’s dysfunctional medical care insurance policies, which tie medical insurance to employment rather than providing it as a right of citizenship. Firms have increasingly pushed employees into part-time status in order to avoid paying medical insurance costs, and today roughly eight million Americans are involuntarily working part-time while seeking full-time employment. Because Obamacare has not shifted the basis of coverage from employment to citizenship, this source of future downward pressure on hours per employee will continue.

　　A unique feature of the slow 2009-2013 economic recovery has been the fact that the employment rate has been steadily improving while the participation rate has been declining, so that there has been virtually no improvement in the employment-to-population ratio (E/N ≡E/L*L/N). In fact, over the three years of recovery between July 2010 and July 2013, the E/N ratio barely budged from 58.5 to 58.7 percent, compared to its prior peaks of 64.4 percent in 2000 and 63.0 percent in 2007. The decline in the labor-force participation rate has prevented any recovery in the employment-population ratio.

　　The decline in the participation rate involves more than just baby-boom retirement. In late July, 2013, President Obama toured several rust-belt cities which have lost most of their manufacturing jobs base. Cities like Galesburg IL, Scranton PA, and Syracuse NY are now mainly reliant on government, health-care, and retail jobs. In Scranton 41.3 percent of those over 18 have withdrawn from the work force, while in Syracuse that percentage is an even higher 42.4 percent.

　　Compared to the actual growth rates in hours per capita of -0.55 percent during 1996-2004 and of -0.99 percent during 2004-2012, my future forecast is for an annual rate of change of -0.42. This includes the impact of baby-boom retirements and the underlying demographic factors that have caused youth and prime-age males to drop out of the labor force, and have induced firms to push workers into part-time jobs. This assumed future rate of -0.42 is a decline only slightly faster than the -0.29 rate realized during 1891-1948 when baby-boom retirement was not a factor. The implication of this choice of the future annual rate of decline of hours per capita is that output per capita will grow that amount, 0.42 percent per year, slower than the rate of productivity growth.

　　After rounding for the education effect, future growth in output per capita will be at a rate of 0.9 percent per year, and the 0.4 percent per year decline in hours per capita consists of a variety of sources, including not just baby-boom retirement but also declining participation among youth and prime-aged people.

　　EDUCATION 2

　　Since Denison’s (1962) first attempt, growth accounting has recognized the role of increasing educational attainment as a source of economic growth. Goldin and Katz (2008) estimate that educational attainment increased by 0.8 years per decade over the eight decades between 1890 and 1970. Over this period they also estimate that the improvement in educational attainment contributed 0.35 percentage points per year to the growth of productivity and output per capita.

　　The increase of educational attainment has two parts, that referring to secondary education and the other relevant for higher education. The surge in high-school graduation rates — from less than 10 percent of youth in 1900 to 80 percent by 1970 — was a central driver of 20th century economic growth. But the percentage of 18-year-olds receiving bona fide high school diplomas has since fallen, to 74 percent in 2000, according to James Heckman. He found that the holders of GED’s performed no better economically than high-school dropouts and that the drop in graduation rates could be explained, in part, by the rising share of youth who are in prison rather than in school.

　　The role of education in holding back future economic growth is evident in the poor quality of educational outcomes at the secondary level. A UNICEF report lists the U.S. 18th out of 24 countries in the percentage of secondary students that rank below a fixed international standard in reading and math. The international PISA tests in 2009, again referring to secondary education, rated the U.S. as ranked 14th in reading, 25th in math, and 31st in science. A recent evaluation by the ACT college entrance test organization showed that only 25 percent of high school students were prepared to attend college with adequate scores on reading, math, and science.

　　At the college level longstanding problems of quality are joined with the newer issues of affordability and student debt. In most of the postwar period a low-cost college education was within reach of a larger fraction of the population than in any other nation, thanks to free college education made possible by the GI Bill, and also minimal tuition for in-state students at state public universities and junior colleges. After leading the world during most of the last century in the percentage of youth completing college, now the U. S. rank in its college completion rate has descended to number 16. The percentage of 25-year-olds who have earned a BA degree from a four-year college has inched up in the past 15 years from 25 to 30 percent, but that is substantially lower than in many other nations.

　　And the future does not look promising. The cost of a university education has risen since 1972 at more than triple the overall rate of inflation. Between 2001 and 2012 funding by states and localities for higher education declined by fully one-third when adjusted for inflation. In 1985 the state of Colorado provided 37 percent of the budget of the University of Colorado, but last year provided only 9 percent. Presidents of Ivy League colleges and other elite schools point to the lavish subsidies they provide as tuition discounts for low- and middle-income students, but this leaves behind the vast majority of American college students who are not lucky or smart enough to attend elite institutions.

　　Even when account is taken of the discounts from full-tuition made possible by scholarships and fellowships, the current level of American college completion has been made possible only by a dramatic rise in student borrowing. Americans owe $1 trillion in college debt. While a four-year college degree still pays off in a much higher income and lower risk of unemployment than for high-school graduates, still about one-quarter of college graduates will not obtain a college-level job in the first few years after graduation. “Dear graduate, face your future as an indebted taxicab driver or barista.”

　　Students taking on large amounts of student debt face two kinds of risks. One is that they fall short of the average income achieved by the typical college graduate, through some combination of unemployment after college and an inability to find a job in the chosen field of study. Research has shown that on average a college student taking on $100,000 in student debt will still come out ahead by age 34, with the higher income made possible by college completion high enough to offset the debt repayment. But that break-even age becomes older if future income falls short of the average graduate. There is also completion risk. A student who takes out half as much debt but drops out after two years never breaks even because wages of college drop-outs are little better than those of high-school graduates. These risks are particularly relevant for high-achieving students from low-income families -- Stanford’s Caroline Hoxby has shown that they often do not apply to elite colleges, which are prepared to fund them completely without debt, so they wind up at sub-par colleges loaded with debt.

　　The poor achievement of American high school graduates spills over to their performance in college education. Many of the less capable enter two-year community colleges, which currently enroll 39 percent of American undergraduates, whereas the remaining 61 percent enroll in four-year colleges. The Center on International Education Benchmarking reports that only 13 percent of students in two-year colleges graduate in two years, although the percentage rises to 28 percent after four years. The low graduation rates combine the need for most students to work part-time or full-time in addition to their college classes, and also the poor preparation of the secondary graduates who enter community colleges. Most community college students take one or more remedial courses.

　　To place the historic contribution of education to economic growth in perspective, Goldin and Katz have calculated, during most of the 20th century education’s contribution to economic growth was around 0.35 percent per year. Estimates by Harvard’s Dale Jorgenson suggest that education’s growth contribution will decline by 0.27 percent in the future as compared to the past. Jorgenson’s estimate has become a consensus view, being adopted in the latest series of sources-of-growth projections by Bryne, Oliner, and Sichel (2013).

　　INEQUALITY 3

　　The inexorable rise in the inequality of the American income distribution continues. The quantitative number used in last year’s paper came from Emmanuel Saez’ web site. He reports that between 1993 and 2008, the average growth rate of real income was 1.30 percent per year but for the bottom 99 percent of the income distribution was 0.75 percent per year, a difference of 0.55 percent per year. I rounded down that growth rate from 0.55 to 0.50 percent per year and used that as my subtraction quantity to translate average growth in real GDP per capita to that of the bottom 99 percent of the income distribution.

　　The Saez numbers have been updated to 2012, but it turns out to make no difference. If we now compare real income growth for everyone compared to the bottom 99% of the income distribution, the 1993-2012 growth rate is 0.87 for the average and 0.34 for the bottom 99%, so that the difference is 0.53 percent, little different than the 0.55 percent previously listed on the Saez web site for 1993-2008.

　　Another indicator of the sharp divide between median and average real income growth is provided in the Census series on median real household income. Expressed in 2011 dollars real household income in 2012 was $52,100, below the 1998 level of $53,700. For mean household income to exhibit no growth over the past 14 years provides evidence beyond the Saez tax-based data that real income growth in middle America has already reached zero. For many Americans my pessimistic predictions for the future have already become fact.

　　Recently there has been substantial publicity for the plight of fast-food workers, most of whom are paid little more than the minimum wage. The bottom 20 percent of American workers classified by income earn less than $9.89 per hour, and their inflation-adjusted wage fell by five percent between 2006 and 2012, while average pay for the median worker fell 3.4 percent. Holding down wages is an explicit corporate strategy at retail firms like Wal-Mart, which hires only temporary workers to fill job openings and forces many of its workers onto part-time shifts. Similarly, the Wall Street Journal writes that

　　Economic changes over the past decade have led to a decline across the country in well-paying jobs, such as those in manufacturing, and an increase in jobs that pay less, such as those in hotels and food services . . . Positions are increasingly being filled not with the young and inexperienced, but by older and more skilled workers who can’t find other jobs.

　　The Caterpillar corporation has become the poster child of rising inequality. It has broken strikes in order to enforce a two-tier wage system in which new hires are paid half of existing workers, even though both groups are members of the same labor union. In contrast there was an 80 percent increase over the past two years in the compensation of Caterpillar’s CEO, whose quoted mantra is “we can never make too much profit.” Foreign companies like Volkswagen continue to open plants in the non-union right-to-work states which is helping to keep manufacturing employment from declining further but is contingent on maintaining worker wages at about half the level that the auto union had achieved for its workers before the financial crisis.

　　Any optimist who thinks that the rise of inequality is about to turn around is not paying attention to the deterioration of the social and economic condition of the bottom one-third to one-half of the income distribution, as family breakup and breakdown deprive millions of children of the traditional support of a two-parent household. Charles Murray’s Coming Apart carefully documents the decline of every relevant social indicator for the bottom third of the white population, which he calls “Fishtown” after a poor district in Philadelphia. Murray admirably presents his data in a series of charts from government data sources that extend from 1960 to 2010, and they apply only to the white population so are not influenced by any shift in population shares among whites, Asians, blacks, and Hispanics.

　　The Murray charts that I find most compelling as evidence of widespread U. S. social breakdown are these. On the decline of work, the percentage of married couples where either one or the other spouse worked 40 or more hours in the previous week declined from 84 percent in 1960 to 58 percent in 2010. The breakup of the family is documented by three complementary indicators all referring to the 30-49 age group: percent married down from 85 to 48 percent, percent never married up from 8 to 25 percent, and percent divorced up from 5 to 33 percent.

　　But the most devastating statistic of all is that in Fishtown for mothers aged 40, the percentage of children living with both parents declined from 95 percent in 1960 to 34 percent in 2010. Children living in a single parent family, usually with the mother as the head of household, are more likely to suffer from poverty and lack of motivation, and are more likely to drop out of high school. The educational and inequality headwinds interact in a multiplicative way and predict a future of continuing decline of the U. S. ranking of high school dropouts and the rate of U. S. college completion. .

　　In short, the inexorable rise in the inequality of the American income distribution shows no signs of ending. Many of the new jobs created during the recent economic recovery have been low-paying jobs, often part-time. The push by employers to force employees into part-time jobs is accentuated by the increasing burden of medical insurance. Other countries avoid the destructive effect of rising medical care costs on insurance premiums and indirectly on job creation by making medical care coverage a right of citizenship paid for by a value-added tax that no one can avoid.

　　At the top there is no limit on the ambition of corporate executives for ever-higher individual compensation, complete with lavish golden parachutes if their tenure at the top comes to an end for any reason. In previous sections we have reduced the future growth rate of per-capita income from the historic pre-2007 growth rate of 2.0 per year to 1.5 percent as a result of the demographic and education headwinds. The inexorable rise of inequality reduces prospective future growth further by 0.5 percent, from 1.5 to 1.0 percent per year, for the bottom 99 percent of the income distribution..

　　REPAYING DEBT 4

　　The future covered by these forecasts, whether over the next 25 or the next 70 years, includes the day of reckoning for the indebtedness of government at the federal, state, and local levels. While the Congressional Budget Office currently estimates that the federal ratio of debt to GDP will stabilize between 2014 and 2020, its optimism is based on highly unrealistic economic forecasts that include a projected growth rate of actual real GDP of 3.4 percent per year for five straight years between 2014 and 2018, on top of a now-unlikely 2.8 percent growth rate for 2013. A more realistic and lower economic growth forecast would replace the CBO’s sanguine projections of a stable debt-GDP ratio with an upward-creeping ratio.

　　But even the CBO projects that trouble lies ahead beyond 2020. The Medicare trust fund is predicted to reach a zero balance in 2026, while the zero-balance date for Social Security has steadily advanced (due to slow economic growth and larger disability claims) from the projected 2047 date estimated six years ago to the latest projected zero-balance date of 2033. When the pessimistic forecasts of this paper for future real GDP growth are applied to those Medicare and Social Security dates, then the zero-balance dates advance forward closer to today. By definition any stabilization of the federal debt-GDP ratio, compared to its likely steady increase with current policies, will require more rapid growth in future taxes and/or slower growth in transfer payments. This is the fourth headwind, the near-inevitability that over the next several decades the disposable income of the bottom 99 percent of the income distribution will decline relative to the average real income before transfers of the bottom 99 percent.

　　A sole focus on the federal debt ignores the unfunded pension liabilities of many of America’s states and localities. The bankruptcy of Detroit has led municipal bond experts to ask whether Illinois and Chicago could be far behind, not to mention other large states with massive unfunded pension liabilities. The long-festering debate in the Illinois legislature about a pension fix involves the percentage by which the growth rate of future benefits will be reduced and what, if any, extra contributions current and future state employees will be asked to make. The projection that future growth in tax rates and/or slower growth of government transfers will reduce the growth rate of disposable income in the future by 0.2 percent is admittedly arbitrary but reasonable number in face of the risks.

　　GLOBALIZATION 5

　　The 2012 working paper included two additional headwinds called “globalization” and “energy/environment.” There is no need to attempt to quantify their possible future influence, as the headwinds discussed above are sufficient to validate the pessimistic forecasts contained in the 2012 paper. [Our remaining sections place] their contributions in perspective and add to the list of headwinds.

　　Globalization is difficult to disentangle from other sources of rising inequality. There has been an enormous loss of well-paying manufacturing jobs that long antedates the 2008 financial crisis and 2007-09 recession. Charles, Hurst, and Notowidigdo (2013) have shown that roughly half of the seven million person loss of manufacturing jobs between 2000 and 2011 occurred before 2008. The time period 2000-07 witnessed the maximum impact of the increase in Chinese manufacturing capacity that flooded the U.S. with imports, boosted the trade deficit, and caused plant closings and ended the chance of millions of workers to enjoy middle-income wages with no better than a high-school diploma. According to their analysis, the only reason that the economy experienced an economic expansion rather than contraction in the years leading up to 2007 was the housing bubble which allowed many of the displaced manufacturing workers to obtain jobs in the construction industry which disappeared after the bubble burst.

　　Globalization is also responsible for rising inequality through another channel. The U.S. has benefitted from foreign investment, particularly in the auto industry, but this has been directed almost exclusively at the right-to-work states, largely in the south, where foreign firms are free to pay workers whatever they want. Wages of $15 to $20 per hour, compared to the old standard of $30 to $40 per hour achieved before 2007 in union states like Michigan and Ohio, are welcomed by residents of the southern states as manna from heaven, and new plant openings are greeted by long lines of hopeful workers at the hiring gates. Globalization is working as in the classic economic theory of factor price equalization, raising wages in developing countries and slowing their growth in the advanced nations.

　　Since 1953 manufacturing employment has declined from almost 30 percent of U.S. employment to less than 10 percent. Some optimists suggest that reduced wages in the southern states, together with a rapid growth of wages in China, will bring jobs back to the U.S. Even if this happens to some extent, the numbers do not point to a major change from the dismal evolution of the manufacturing sector over the past four decades. A revival in manufacturing employment by a currently implausible rate of 20 percent over the next five years would suffice to pull its employment share in the American economy back only from 10 to 12 percent.

　　ENERGY/ENVIRONMENT 6

　　Another headwind discussed in the 2012 paper was “energy/environment.” This set of complementary topics remains highly controversial. Optimistic pundits point to vast new fields of gas and oil made possible by fracking as fundamentally changing the competitiveness of American industry by creating a cheap source of energy that is not available to other countries outside the North American continent.

　　The first distinction to make is between oil fracking and gas fracking. The price of oil is set in world markets, and so additional oil discoveries that may ultimately make the U. S. oil-independent have no impact on the price of oil in the world and in the U.S. That depends on the worldwide balance of oil demand and supply. In early September, 2013, the price of West Texas crude oil is $110 per barrel compared to $11 per dollar in February 1999. The enormous and sustained increase in the price of crude oil over the past decade, due in large part to the increased demand from China and other emerging economies, hangs as a shadow over current and future U. S. economic growth. Higher oil prices raise not just gasoline prices at the pump and increase airline fares, draining household disposable income, but increase manufacturing costs for any product based on petroleum, including most types of plastics.

　　Because gas cannot be easily transported between continents, the gas fracking revolution in the U.S. is more of a boon. But this is not a positive boost to productivity in the sense of the invention of commercial aviation, air conditioning, or the interstate highway system. Rather, the cheaper price of gas that is unique to the North American continent will help offset the rising cost of oil and will lead to a welcome substitution of gas not just for oil but for coal, helping to reduce the growth of carbon emissions.

　　It is beyond the scope of this paper to discuss the large topic of global warming and environmental policy. While the extent and likely effects of global warming are highly conjectural, there is little doubt that they are occurring and will create weather events – whether coastal flooding or more frequent and violent tornadoes – that will reduce future economic growth and raise insurance premia. Future carbon taxes and direct regulatory inventions like the CAFÉ fuel-economy standards will divert investment from true innovations into research that has the sole purpose of improving energy efficiency and fuel economy. Economic or regulatory pressures that force households and firms with machinery or consumer appliances that are operationally equivalent but more energy-efficient, at substantial capital cost, are quantitatively and qualitatively different than the early 20th century innovations that replaced the ice-box by the electric refrigerator or replaced the horse by the car.

　　MEDICAL INSURANCE 7

　　One last headwind was not discussed in the 2012 paper nor is it pursued here. The unique American decision as a society to base medical care insurance on the status of employment, instead of making medical care protection a right of citizenship, reduces the current and future efficiency of the American economy by as much as six or seven percent of GDP. David Cutler and Dan Ly (2011) have calculated that if the U.S. had the same ratio of medical care expenses to GDP as does Canada, the level of U. S. medical care expenditure would be lower by $1 trillion per year. A medical care system on the Canadian model would not only save enormous resources that could be devoted to other social purposes but would raise life expectancy by allowing the entire population access to preventive medical care.

　　Whatever the other flaws or virtues of Obamacare, it missed the chance to cut the tie of medical insurance to employment. As a result, the unlucky American who loses his or her job also loses medical care insurance. The inefficiency created as doctors and their staffs are forced to deal with endless variations of forms and filing procedures created by multiple private insurance companies steadily drags down American economic performance. And the rising cost of health insurance steadily reduces the national accounts measure of total wages and salaries excluding fringe benefits (much of which is employer subsidies to health insurance) relative to total employee compensation including fringe benefits.

　　[The third and final Post in this series will discuss the prospects for further technological Innovations and their likely contributions to economic growth.]

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　　GUEST BLOGGER

　　Economist Robert J. Gordon is one of the USA’s leading experts on the current productivity of the American economy. He is writing a book on the technological revolution that propelled American economic growth between about 1891 and 1972. In August 2012 he published a paper asking the deliberately provocative question “Is U.S. Economic Growth Over?”

　　Gordon’s purpose was to alert American economists and policy-makers to the possibility that, as they continued to attempt to speed “recovery” from the 2007-2009 Great Recession, they could not count on a return to the high rates of growth to which Americans have become accustomed. His question has indeed provoked much debate among American economists.