The Future of Growth in the United States: What Goes Up Must Come Down?

Saturday, Oct 8, 2016 | 03:30 PM - 04:45 PM

Location: Jack Morton Auditorium

After decades of rapid and robust growth, the U.S. economy has lost some of its allure. GDP growth averaged 2 percent over the past 5 years, well below the 3 percent or more rates in the two decades before the global financial crisis. Productivity growth is at historic lows and population aging is weighing on labor supply. Some of the lackluster performance can be blamed on the drawn-out recovery, but there is growing evidence that market dynamism had begun to decline well before the Lehman crisis. Business startup and exit rates have fallen since the early 1990s and the labor market has steadily become less and less fluid. Are the gravitational forces of demographic change and productivity normalization finally pulling down growth, or is another innovative burst around the corner? The seminar examines the reasons behind the U.S. growth slowdown, the prospects for a recovery in productivity and dynamism, and the scope for policies to influence current growth trends.

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Moderator

Sam Fleming, FT

Sam Fleming is US Economics Editor at the Financial Times, based in Washington DC. He previously worked as the newspaper’s Financial Policy Correspondent in London, where he started in October 2013. He worked as Economics Editor for The Times of London from 2010 and 2013. Between 2006 and 2010 he was Associate City Editor and Economics Correspondent for the Daily Mail newspaper, also in London. He started his work in journalism at Bloomberg in 2001, where he covered industry, the stock market and latterly economics until 2005. Between 1997 and 2000 he worked at Slaughter and May, a London-based corporate law firm, qualifying as a solicitor in 1999. He studied law at the College of Law, London, from 1994 to 1996. His university degree was at Pembroke College, Cambridge, where he graduated in 1994. He was born in London in 1973.

Panelists

Martin Baily, Senior Fellow, Brookings Institute

Martin Neil Baily, former senior fellow (2001–07) at the Peterson Institute for International Economics, is a senior fellow at the Brookings Institution, where he held the same position from 1979 to 1989. Baily re-joined Brookings in September 2007 to develop a program of research on business and the economy. He is studying financial regulation, growth, and how to speed the recovery. He is a Senior Advisor to the McKinsey Global Institute and to the Albright Stonebridge Group. He is the co-chair of the Financial Regulatory Reform Initiative of the Bipartisan Policy Center, and a member of the Squam Lake Group of financial economists.

In August 1999 Dr. Baily was appointed as Chairman of the Council of Economic Advisers. As Chairman, Dr. Baily served as economic adviser to the President, was a member of the President’s Cabinet and directed the staff of this White House agency. He completed his term as Chairman on January 19, 2001. Dr. Baily previously served as one of the three Members of the President’s Council of Economic Advisers from October 1994 until August 1996.

Baily has served as a Senior Advisor to the McKinsey Global Institute for many years and was an adviser to the Congressional Budget Office from 2006-09. Dr. Baily was a Principal at McKinsey & Company at the Global Institute in Washington, D. C. from September 1996 to July 1999 and from 2001 to 2007 he was a Senior Fellow at the Peterson Institute where he published books on the European economy and on pension reform. Baily was the co-chair of the Taskforce on Financial Reform convened by the Pew Charitable Trusts.

Dr. Baily earned his Ph.D. in economics in 1972 at the Massachusetts Institute of Technology. After teaching at MIT and Yale, he became a Senior Fellow at the Brookings Institution in 1979 and a Professor of Economics at the University of Maryland in 1989. He is the author of many professional articles and books, testifies regularly to House and Senate committees and is often quoted in the press.

Karen Dynan, Assistant Secretary for Economic Policy, United States Treasury Department

Dr. Karen Dynan serves as the U.S. Department of the Treasury's Assistant Secretary for Economic Policy and Chief Economist. In this role, Dr. Dynan leads the Office of Economic Policy, which is responsible for analyzing and reporting on current and prospective economic developments and assisting in the determination of appropriate economic policies.

From 2009 to 2013, Dr. Dynan was the vice president and co-director of the Economic Studies program at the Brookings Institution. Prior to joining Brookings, she served on the staff of the Federal Reserve Board for 17 years, most recently as a senior adviser. While at the Fed, she played a leadership role in a number of areas, including macroeconomic forecasting, analysis of household and real estate finance conditions, and the policy response to the financial crisis. She also served as a senior economist at the White House Council of Economic Advisers, from 2003-2004, and as a visiting assistant professor at Johns Hopkins University in 1998.

Dr. Dynan is an expert on macroeconomic policy and household financial issues who has published widely in leading economics journals. She received her Ph.D. in economics from Harvard University and her A.B. from Brown University.

John Haltiwanger, Professor, University of Maryland

John C. Haltiwanger, is a Distinguished University Professor in the Department of Economics at the University of Maryland. He is also the first recipient of the Dudley and Louisa Dillard Professorship in 2013. He received his Ph.D. from the Johns Hopkins University in 1981. After serving on the faculty of UCLA and Johns Hopkins, he joined the faculty at Maryland in 1987. In the late 1990s, he served as Chief Economist of the U.S. Census Bureau. He is a Research Associate of the National Bureau of Economic Research, a Senior Research Fellow at the Center for Economic Studies at the U.S. Census Bureau, and a Fellow of the Society of Labor Economics. He has played a major role in developing and studying U.S. longitudinal firm-level data. Using these data, he has developed new statistical measures and analyzed the determinants of firm-level job creation, job destruction and economic performance. He has explored the implications of these firm dynamics for aggregate U.S. productivity growth and for the U.S. labor market.

The statistical and measurement methods he has helped develop to measure and study firm dynamics have been increasingly used by many statistical agencies around the world. His own research increasingly uses the data and measures on firm dynamics from a substantial number of advanced, emerging and transition economies. His work with the statistical agencies has been recently recognized in his being awarded the Julius Shiskin Award for economic statistics in 2013 and the Roger Herriott Award for innovation in federal statistics in 2014. He has published more than 100 academic articles and numerous books including Job Creation and Destruction (with Steven Davis and Scott Schuh, MIT Press).

Prepared by the Secretary’s Department

Contributor: Fei Liu

Panelists discussed potential reasons behind the low productivity growth and the rising dispersion of productivity within industries in the United States. They also shed light on possible policies to address these problems.

Key points:

- Panelists pointed out that the recent low productivity growth in the United States is the main contributor to low growth. At the same time, low investment, poor business dynamism, and low labor force participation all feed into the low productivity growth. Low labor force participation can be attributed to the aging population, slow population growth, discouraged workers, and the widening income and wage distribution that reduces the incentive to work. Dynan added that female labor participation is also leveling off compared with three decades ago. Haltiwanger underscored that the declining labor market dynamism—difficulty in climbing up job ladders and the deceleration of job-to-job flow—is another key factor behind the low labor force participation.

- Haltiwanger observed that productivity growth connects positively to the entry of entrepreneurs, but the speed of entry has slowed down since 2000. Panelists also pointed out the rising dispersion of productivity within industries—the frontier firms are moving ahead with higher productivity but the rest of the industry is not catching up. Baily thought that a lack of capability in adopting new technology holds back convergence. Haltiwanger stressed that filling the productivity gap offers an opportunity for the laggard firms to regain productivity if resources can be reallocated quickly.

- Baily raised the possibility that productivity growth may be understated due to measurement difficulty and error.

- In response to the moderator’s request to identify the key policy responses, Bailey suggested policies that further promote competition and improve skills of the workforce, Dynan noted the need for better policies to support working families, and Haltiwanger would like to change the small business administration to young business administration and focus on the main barriers facing young entrepreneurs.

- Haltiwanger believed that there is still large scope for the United States to reform its product and labor markets. One example is the dramatic increase in the fraction of jobs that require occupational licensing. There is also evidence that the U.S. product markets have become less competitive, especially in the high-tech sector, where high return to standardization has led to a winner-takes-all environment. Dynan saw scope to relax unnecessary occupational licensing and leave the licensing requirement to industry.

Quotes:

“If one looks at the frontier firms, they are still doing well but the rest (of the firms in an industry) are not. Why would that be? Basically, the innovation and best practices are not diffusing into the rest of the industry, either because there is not enough competition, not enough pressure forcing companies to change, or companies don’t have the capability to use the new technology available to them.” Martin Baily, Senior Fellow, Brookings Institution

“The regulatory environment makes a big difference in terms of productivity, particularly the regulations that limit competition. We always say the United States has one of the least regulated markets and the best practice in terms of regulation. Do we still have the best practices? I don’t know.” Martin Baily, Senior Fellow, Brookings Institution

“Economists often tell people to reform product markets, labor markets, and credit markets, so that you don’t have barriers to entry and post-entry growth. Unfortunately, some evidence shows that the United States has struggled on all these areas that we give advice on to the rest of the world.” John Haltiwanger, Professor, University of Maryland

“It is hard to argue that globalization is bad for innovation. It creates a larger market from which people can reap the rewards—maybe there is a tradeoff as it comes to who gets the rewards. But in the larger market, there is more incentive to innovate, more gains to capture, and a global exchange of ideas.” Karen Dynan, Assistant Secretary for Economic Policy and Chief Economist, U.S. Department of the Treasury