Chart of the Day #24

Update: Giving this chart "double power"
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Wish I could give this chart "double power".

Many of our nation's economic policies (both fiscal and monetary) are predicated on some assumed growth rate. The growth rate, if properly calculated, allows us to plan, to set future spending, and to prepare the right sized infrastructure for the resulting economic times.

You don't hear the number out loud very often. It does vary a little, depending on who is doing the calculating. Most politicians say they can keep us growing at 4-5%. If you set it too high, you run into gross overspending and overinvesting. If you set it too low, you get restriction of the very growth you want to achieve.  Sometimes the numbers are pure fantasy. For example, Detroit had consistent negative growth of 1.5% per year for 60  years (suggesting a planned slowing of city expenditures), but instead, the city used 8% growth in their calculations for revenue growth. I'm not holding Detroit as a microcosm of US trends except for this: You have to get the math right.

From time to time, it's necessary to get realistic about things, and Robert Gordon has done this with the analysis conducted for the National Bureau of Economic Research, titled  Is US Economic Growth Over?: Faltering Innovation confronts the 6 Headwinds

It may not be pleasant to contemplate a 0.2% growth scenario in a 2.5% Fed inflation target environment. Gordon points out that the path to higher growth will require much more than our leaders are thinking.