Raising the Economy's Speed Limit

Raising the Economy’s Speed Limit

Claire Fernandez

The primary issue on the mind of most Americans is the economy and it is hard to discuss anything about our country without that being the topic of conversation. Many try to come up with their own schemes as to how they could fix the economy if only they were president but with the world’s top economist trying to solve the issue, the question of whether it is even possible to solve the problem comes into play. In the article, “Raise the Economy’s Speed Limit” by Jared Bernstein of the New York Times, the author states that America’s underlying growth rate, that is, the best the economy could do under optimal conditions, without driving up inflation, has slowed from just under 4 percent in 2000 to just under 2 percent today. This means that, without the underlying growth rate to increase, the economy cannot possibly expand as much as the majority of American’s would like it to.

            But, why is it that our underlying growth rate has slowed? It is much simpler than one may think and based purely in the principles of economics we have learned thus far. Growth rate is determined by the supply of labor and capital and how efficiently we use those inputs to make output, which can be measured in gross domestic product. And, apparently, we are not up to par in any of these categories. The growth of the labor force is decelerating due to the retirement of baby boomers, the recession, which caused even young potential workers, who got discouraged with their job prospects, to leave the labor force and the plateau of the influx of women into the workforce. And, we have underinvested in our capital stock and spent too much on goods for the present rather than the future, restricting economic growth. But, with a weak economy, fewer people want to invest their money and therefore the economy can’t grow. It is an endless cycle that we never seem to be able to get out of.

            In order to solve the problem that is the American economy, we need to fix the problems in the categories already mentioned. We must invest in the future, increase productivity and find a way to accelerate the entrance into the workforce. But, in my opinion, these do not seem to be what policy makers seem to have their focus on. When I hear about the economy, I hear about little arguments over the marginal tax rate or cutting government spending for one program in order to make room for another. With our nation being 16 trillion dollars in debt and that number increasing every day, I think it is time to stop micromanaging the smaller issue and focus on the core of the problem. For when there is a counting clock of how much debt we are in, it is truly sad. You can see the clock here if you would like. http://www.brillig.com/debt_clock/. We need to get more people into the workforce and decrease unemployment, make economic investments in order to be able to grow in the future, find ways to increase supply and demand for labor and stop playing people pleasing political games while still spending more than we have. Seems easier than you may thing, right?