Are we facing a low growth future? – Part 1
One of the big policy debates in Australia and around the world right now is whether economic growth will be slower in the future than in the past. Nearly a decade after the Global Financial Crisis and economic growth remains weak in many rich nations. Australia has been an exception to the malaise, but growth has slowed as the mining boom winds down. A growing number of voices are wondering whether we’ve entered a “new normal” of slower economic growth, which would have big implications for Australians’ future living standards, our public policy choices and the state of our politics.
In part 1 of this two-episode podcast, with the help of Australian Perspectives Fellow Brendan Coates and Productivity Growth Director Jim Minifie, we take a deep dive into the evidence that economic growth may be slower in the future and what might explain it. Stay tuned for part 2 where we will discuss what policymakers could do in response.
To help listeners navigate the debate, below are a few references cited in the podcast discussion.
Cardiff Garcia, Productivity and innovation stagnation, past and future, FT Alphachat, 2016 [warning: paywall].
A great overview of all the various explanations of why productivity growth has slowed (with hyperlinks).
Jim Minifie, Stagnation nation, Grattan Institute, 2017.
Is Australia at risk of economic stagnation as the mining investment boom fades? While the decline in business investment is no cause for panic, policymakers must do more to ensure we remain a dynamic, growing economy.
Lukasz Rachel and Thomas D Smith (Bank of England), Secular drivers of the global real interest rate, Bank of England, 2015.
Real interest rates, both globally and in Australia, have declined sharply over the past 30 years. Population ageing, rising inequality, slower future global growth and a global glut of savings by emerging market governments (among other factors), have pushed down real interest rates. The authors conclude most of these forces will persist, which could leave real interest rates as low as one per cent for the foreseeable future.
Robert Gordon, The Rise and Fall of American Growth: The US Standard of Living since the Civil War, 2016
Robert Gordon’s weighty tome is the most prominent of the wave of economists warning that economic growth will be slower in future. But rather than reading the 750 pages of Gordon’s book, check out this review by The Economist instead.