What will the next year bring for the world economy? What will happen to production in the developing world, and in the rich industrial core? Indeed, do we even still dare to maintain that distinction anymore? After all, most rich countries have entered a post-industrial age, while developing countries now have—or soon will—as great a share of their population working in “industry” as the world’s rich nations.
In the United States, the fears of nine months ago that America’s economy might succumb to deflation have been dispelled. What remains is a sense of tremendous opportunity wasted.
Ever since George W. Bush took office, America’s annual real GDP growth has averaged 2.3%—a pace that would have been acclaimed as normal and satisfactory when George W. Bush’s father or Ronald Reagan was president, but that after the Clinton boom now seems tawdry and sluggish. Indeed, it is clear that the American economy could have grown much faster than it has.
The US Bureau of Labor Statistics reports a drop in the employment/population ratio from 64.4% in 2000 to 62.3% today, together with a decline in non-farm payroll employment in this period from 131.8 million to 130.2 million. Underlying the business cycle, the rapid progress of the information-technology revolution is pushing American productivity growth ahead as fast as—or faster than—ever. Had the Federal Reserve been more aggressive in pushing interest rates down, or had Bush and Congress passed tax cuts aimed at boosting short-term demand and employment, the US economy would have grown at a pace not seen in a generation and a half.