Restoring America's Economic Vitality

Given the steady stream of bad economic news, it can be hard to remain optimistic. However, once you've put emotions aside and take an objective look at America's fundamental economic situation, it's clear that the U.S. has an enormous opportunity to rebuild itself and generate a dramatic rise in its medium-term standard of living.

Recently, Stanford economist John Taylor mapped out this path in basic terms.¹ It's a path also advocated by former presidential candidate Tim Pawlenty. At its core, this plan has a target goal of generating 5 percent annual real economic growth. Many analysts are skeptical, preferring to extrapolate the recent past. However, the Trends editors believe that this path is not only feasible, but also necessary.

Average Anual Percent Change in U.S. Labor Productivity

As Taylor observes, this new growth paradigm depends on two essential factors:

1. Employment growth
2. Productivity growth

Let's start with employment growth. In the year 2000, 64.7 percent of Americans aged 16 and over were actually employed. Today, it's 58.4 percent. Returning to the workforce participation rates we saw in 2000 would require an increase of 10.8 percent in the number of jobs filled. Allowing for the 1 percent expected annual population growth, an average 2 percent per year growth in the number of jobs would get us above 65 percent participation by 2020.

What about productivity growth? According to the Bureau of Labor Statistics, it has averaged 2.7 percent since 1996. This growth has been driven by the IT revolution. If not stifled, this growth is likely to continue for at least the next two decades, as new technologies build upon the existing foundation.

Combining these reasonable targets for employment and productivity growth yields an average of 4.7 percent annual economic growth over the coming decade. This simple calculation suggests that a 5 percent target is definitely a realistic goal.

Obviously, there will be significant hurdles as we move forward. This month's issue of Trends examines each of those hurdles and the business and political choices that need to be made in... To read the full article, you must be a Trends Magazine Subscriber. To learn more, click here