It’s a sure thing that Donald Trump will spend much of his State of the Union boasting about the economy. So this seems like a good time for a refresher on some basic macroeconomics – and the reasons why the expansion of 2017, which continued the long expansion that began in 2010, is in no sense a justification for wildly optimistic growth projections looking forward.
[data] suggests a potential growth rate – growth consistent with constant unemployment – of maybe 1.5 percent. And 2017 isn’t an outlier.
Why is potential growth so low? Unfavorable demographics are one big culprit: the baby-boomers are getting old (you kids get off my lawn), so the working-age population is barely growing. Oh, and cracking down on immigration is, you know, not likely to help on that front.
Productivity growth is also lackluster, despite all the hype about robots and all that.
So if you think about it, 2017 offers no evidence to support big talk about future growth. On the contrary, the fact that unemployment declined despite not-so-fast growth is a sign that growth will be a lot slower going forward, now that we don’t have a lot of unemployed Americans to put back to work.