This study provides an in-depth analysis of the changes in long-term economic growth and the factors that brought about those changes in the United States, and provides a long-term outlook for the future growth and transformation of its socio-economic system.
First, developed countries such as the US recorded high economic growth and productivity since World War II until the early 1970s, but growth rates have since slowed. Supply-side economists such as Robert Gordon argue that the slowdown in economic growth that has been seen since the 1970s was due to slowing technological innovation and stagnant growth in productivity. Increased industrial activities since the 1990s also contributed to the lowered productivity growth by worsening allocative efficiency. On the other hand, Keynesian economists such as Lawrence Summers argue that a number of factors, including a slowdown in population growth since the 2000s, have increased savings compared to investment demand, which contributed to stagnant aggregate demand, leading to a fall in the real equilibrium interest rate and finally resulting in long-term economic stagnation. More progressive researchers hold the position that conservative economic policies represented by neoliberalism, along with growing inequality, adversely affected aggregate demand and productivity growth. We emphasize the need to better understand the stagnation of productivity and economic growth from an integrated perspective that encompasses both supply and demand sides, based on a variety of studies that suggest how aggregate demand can affect aggregate supply.
Next, we review in detail the recent rapid transformation in macroeconomic policy, and based on this review, present a long-term growth outlook for the US economy over the next 10 to 30 years. In response to the COVID-19 pandemic, governments in advanced capitalist countries have tried to minimize the adverse effects of the crisis by implementing strong fiscal expansion policies to preserve income and jobs for citizens and support businesses. These macroeconomic policy changes are based on recent developments in macroeconomics that emphasize the role of active fiscal policy.
Recent macroeconomic studies emphasize “the hysteresis effect,” in which demand-side shocks can adversely affect supply-side productivity and potential output through investment in recent technologies or long-term unemployment, and the efforts to overcome them. In particular, it is argued that productive fiscal spending is beneficial for economic growth and the fiscal soundness of the government, as it is unlikely that the government debt ratio will rise when the interest rate on government bonds is lower than the economic growth rate.
Based on this view, the Biden government of the US is promoting a large-scale public investment plan that includes infrastructure and social safety nets to overcome the COVID-19 economic crisis and boost economic growth. As recent technologies are developing in various fields, it is also forecast that productivity and growth rates will increase in the 2020s if such technological innovation and aggregate demand expansion are combined. The Biden administration is also making efforts to strengthen anti-monopoly regulations on large technology companies, and to improve institutions to strengthen workers' bargaining power. If successful, these reforms could help increase productivity and stimulate aggregate demand. This series of economic policies will lead to transformations of the socio-economic system in the direction of balancing the powers of three actors – the government, capital, and labor – a move away from the neoliberal stance in favor of giant corporations.
Finally, we present the long-term economic growth rates of the US, based on a high-growth (recovery) scenario and a low-growth scenario. The growth recovery scenario is one in which long-term stagnation ends and high growth is realized by accelerating technological innovation and the government's active fiscal expansion in the 2020s. It expects that in the US, the annual real GDP growth rate will be 3.3% from 2021 to 2031. Alternatively, the low growth scenario presents an economic growth rate of 1.9% over the same period, in which economic reform and productivity improvement efforts fail and economic growth stagnation persists.
Since the 1980s, fiscal conservatism, which emphasizes fiscal soundness, has dominated economic policy in Korea, and this tradition has been largely influenced by the US government and international economic organizations. If a paradigm emphasizing the government's fiscal role is established as an economic policy stance for international organizations and advanced economies, this will also lead to a significant change in Korea's economic strategies.
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