Earth to Algos: only productivity gains drive prosperity

As stock markets have blown skyward since the election–led by financials and energy cos–bulls have tried to justify the most reckless equity valuations since the tech wreck peak in 2000 on belief that the Trump administration will drive “sustained 3 to 4% GDP” growth.  That would be miraculous indeed.

In reality, the potential GDP growth adds up to about 1%.  Economic Cycle Research Institute’s Lakshman Achuthan explains the math of growth in this interview starting at 3:23 on the playbar.

Potential labor force growth is projected to be less than ½%, plus productivity growth of about ½% for the past six years equals only 1% longer-term GDP growth.

Demographics are set in stone, so to get to 3½% GDP growth promised, productivity growth would have to be 3%, which is six times last six years’ average.

So, while Mr. Mnuchin promised “the largest tax change since Reagan,” we’d need to roughly double the productivity growth of the Reagan years. You’ll forgive me for being a bit skeptical.

The Litmus Test for any policy: will it boost long-term productivity growth?

Why has productivity slumped? Essentially, capital investment has plunged, relative to hours worked, as never before. That is what needs to be reversed. For more details, please see “Low Labor Productivity Growth The Main Culprit.”

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