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Productivity, Debt, and Taxes


A Reuters blogger, James Pethokoukis, claims that the United States is about to enter into a 20-year period of slow growth. He cites as evidence for his claim a paper written by Robert Gordon, an economist at Northwestern University. However, Pethokoukis doesn’t provide a link to the original paper; therefore, it’s hard to judge how much of this is an accurate interpretation of the economist’s conclusions.

But the argument presented is a rather stark one:

Gordon’s argument is simple: The productivity surge starting in the 1990s was driven primarily by the Internet, though drastic corporate cost-cutting in the early 2000s helped, too. Going forward, though, Gordon thinks the IT revolution will be marked by diminishing returns. He concludes, for instance, that most of the product innovations since 2000, like flat screen TVs and iPods, have been directed at consumer enjoyment rather than business productivity. (Also not helping are a more protectionist trade policy and a tax code where the penalties on savings and investment are about to skyrocket with rates soaring 60 percent on capital gains and 200 percent on dividends.)

All this dovetails nicely with research showing financial crises are followed by negative, long-term side-effects such as slow economic growth and higher interest rates. Lots of debt, too. Indeed, researchers Carmen Reinhart and Kenneth Rogoff find advanced economies with debt-to-GDP ratios above 90 percent grow more slowly than less-indebted ones. (Japan is the classic example.) America is on track to hit that level in 2020, according to the Congressional Budget Office.

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Categories: Current Affairs, Debt, Economy, Jobs
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