How fast can the economy grow?

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Article Highlights

  • Increases in labor productivity are a key determinant of the rise in potential output.

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  • Growth in potential output is really what matters for increasing the standard of living.

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  • At an annual growth rate of 2.25% since 1889, U.S. output per hour doubles every 31 years.

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Discussions about the economy tend to focus much more on the Fed’s latest program to stimulate spending and the drama on Capitol Hill than on the potential for the economy to generate higher income over the long haul. Yet, the growth in potential output is really what matters for the standard of living. And increases in labor productivity are a key determinant of the rise in potential output. Between 1889 and 2012 ― the longest span of time with reasonably consistent data― real output per hour worked in the United States rose about 2¼ percent per year on average. At this annual rate, output per hour doubles every 31 years, which implies roughly a 15-fold increase since 1889.

 

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About the Author

 

Stephen D.
Oliner
  • Stephen D. Oliner is a resident scholar at the American Enterprise Institute (AEI) and a senior fellow at the University of California, Los Angeles (UCLA) Ziman Center for Real Estate.

    Oliner joined AEI after spending more than 25 years at the Federal Reserve Board. An economist by training, Oliner held a number of high-level positions at the Fed and was closely involved in the Fed's analysis of the US economy and financial markets. Since leaving the Fed, Oliner has become well known for his analysis of US monetary policy and has maintained an active research agenda that focuses on real estate issues and the US economy’s growth potential.  He is coprincipal developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.

    Oliner has a Ph.D. and an M.S. in economics from the University of Wisconsin. He received a B.A. in economics from the University of Virginia.

  • Phone: 202.419.5205
    Email: stephen.oliner@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: 202.419.5212
    Email: emily.rapp@aei.org

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