2009 May 31 Sunday
US Economic Growth Shifting To Lower Long Term Rate?

Is the future potential growth rate of America lower than it has been in the last half century?

May 26 (Bloomberg) -- Americans may have to get used to unemployment greater than 8 percent for the first time since 1983 and an economy that won’t grow much beyond 2 percent as a consequence of the lost confidence in consumer credit that shattered financial markets.

By this time next year, “the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.

I think this is the same Mohamed El-Erian who left management of Harvard's endowment just before it tanked along with the rest of the market. I wonder if he saw what was coming.

What is important about a slower growth rate: If it happens it is more disastrous than appears at first blush. America's big entitlements programs depend on rapid economic growth to make them able to pay even most of what they (unrealistically) promise to future generations of retirees. Even before factoring in a long term decrease in the rate of economic growth the big US government old age entitlements programs have seen their projections for insolvency moved up this year as has happened in other recent years.

Things have gone from bad to worse for the future of Social Security and Medicare. Social Security will begin to pay out more than the program receives in tax revenues by 2016, a year earlier than expected, according to a recent government report. Trust funds for Social Security are expected to run out completely by 2037, four years earlier than projected a year ago.

Medicare's fund that pays hospital bills for seniors, meanwhile, already is operating in the red and is expected to be exhausted by 2017, two years earlier than projected a year ago.

In the last 7 years Medicare's expected insolvency date has moved up 13 years sooner. Imagine what happens if the recovery from the current recession comes late and slowly.

The current economic downturn, which has eliminated millions of jobs and reduced workers' payments into the system, has further eroded Medicare's hospital trust fund.

The fund's fiscal health is tied, in part, to the economy's health. As recently as 2002, the trustees projected the fund could remain solvent until 2030; five years before that, they had warned of a collapse by 2001, precipitating a rescue by Congress.

Another contributing factor: Bad economic conditions drive people to retire and start collecting benefits sooner.

I expect Peak Oil and a less skilled population will make this picture far worse in the coming years. Bad economic conditions cause retirees to start collecting benefits sooner. This trend could continue for years.

The rate at which the US government is piling on unfunded obligations is not sustainable.

Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

You think we've been irresponsible individually? We've been far more irresponsible collectively.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

Barack Obama (peace be upon him) now wants to saddle us with a huge expansion of government spending for medical care for poorer people. This is on top of all the bad news above. He's got the spendthrift nation on a spending bender. The empire is in decline.

Update: Barack Obama also favors an immigration amnesty that will undermine the welfare state by increasing the number of welfare recipients and low earners and low tax payers. The problems of the United States are becoming too large already without more new policies that make them even worse.

Update II: Medicare spending increases combined with a stagnant economy will cause a financing crisis.

The trustees predict a 30 percent increase in the number of Medicare beneficiaries in the coming decade, to 58.8 million in 2018, from 45.2 million last year.

But the projected increase in health costs and the use of medical care is a more significant factor in the growth of Medicare. The trustees predict that average Medicare spending per beneficiary will increase more than 50 percent, to $17,000 in 2018, from $11,000 last year.

The 2010s will be characterized by fighting over pie slices as the pie doesn't grow as fast the demands on it.

Share |      By Randall Parker at 2009 May 31 11:36 PM  Economics Living Standards


Comments
A.Prole said at June 1, 2009 3:24 AM:

I always thought that the importation of millions of dwarfish, pot-bellied Mexicans were America's way to stop the disease of 'Euro-sclerosis' (as those shitcunts at the Economist and WSJ railed and jeered at Europe for so long), the mantra always was a 'diverse' and rapidly growing population = economic growth whilst tired old Europe -'too stupid and racist' to import wogs by the million was doomed to a future of low-growth and eventual economic extinction.
So how come Jose' isn't bringing home the bacon?

ziel said at June 2, 2009 8:17 PM:

It's already been going on over the last 50 years - our boom times have been getting less-and-less prosperous.

See here: http://lyingeyes.blogspot.com/2008/11/hangovers-come-easier.html

So I wouldn't be surprised to see the next recovery average around 2.75 annual growth.

AMS-åtgärder said at June 2, 2009 8:45 PM:

With no economic growth and the depletion of social capital, things will get very fucked up.

At least if people Pat Buchanan was president, California would at least be keeping its welfare state. Paleoconservatism does not openly support the welfare state, but it least it would prevent it from destroying itself. The welfare state (like Sweden's folkhemmet) is one of humanities crowning achievements and one that shows me the inherent "good" in humanity; it shows humanity's capacity for empathy and its ability to eliminate human suffering. The welfare state in Sweden allows unfortunate Swedes to get help without the humiliation of going to a private charity. The welfare state to me is very sarcosanct, and this means destroying other ideologies such as "diversity" to protect it.

Please, please, I am not comfortable calling myself a paleoconservative, but for Christ's sake, make sure that it is the dominant strain of conservatism. At least paleoconservatism aren't parasite conservatives who destroy the countries wealth for their own private gain, by promoting immigration for cheap labor and leaving others with the bill, nor do they destroy protected high paying manufacturing jobs. I respect Paul Craig Roberts and Pat Buchanan. If Europe falls, it has a few more decades to go, and it would not be because of its low birthrate and demographs, but because of Muslims.

I count myself as a Social Democrat, and I would vote for a paleoconservative instead of a person promising more welfare programs. I love the social democratic welfare state, I would be willing to deport all illegals just to have it. There is really no hope for California, there is not enough money flow or social capital to extract from the people to sent the illegals to "AMS-åtgärder;" it is best just to deport them. Paleoconservatism should be adopted by Europe to protect its wonderful welfare states. I do not want free market countries like Hong Kong to win superiority over the welfare state.

The liberal and conservative elitists fucked up in California. I hope the right-wingers in this blog do not soley blame the latter. Also, feel free to blame racial interest groups such as La Raza!!

http://news.yahoo.com/s/ap/20090528/ap_on_re_eu/eu_muslim_discrimination;_ylt=AnkETQ1leEGLLR2SYbhjsZc7Xs8F;_ylu=X3oDMTJ1czVubmswBGFzc2V0A2FwLzIwMDkwNTI4L2V1X211c2xpbV9kaXNjcmltaW5hdGlvbgRwb3MDOARzZWMDeW5fcGFnaW5hdGVfc3VtbWFyeV9saXN0BHNsawNldXNlZXN3aWRlZGk-

That is good news, if Muslims are a threat to the welfare state, kick them out of Europe.


"So I wouldn't be surprised to see the next recovery average around 2.75 annual growth."


I would be surprised. I think growth would be at least one percent.

AMS-åtgärder said at June 2, 2009 9:00 PM:

"I would be surprised. I think growth would be at least one percent. "

I meant to say "at most 1.5%."

"The liberal and conservative elitists fucked up in California. I hope the right-wingers in this blog do not soley blame the latter."

I meant to say former instead of later.

Long live the welfare state and Sverige!!!

mike said at June 7, 2009 12:29 AM:

Basically, high growth in North America, and Australasia for that matter, stopped in about 1973, when the industrial sector started to decline and oil prices started to increase. Since then high growth has only been possible through high immigration and land sales.

The US could stimulate some genuine growth by cutting back its military spending, as it did in the 90s, but there is no realistic way to recapture the high growth days of the 50s and 60s. The 'Anglosphere,' like the rest of the West, is in for a tough time over the next few decades.


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