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The Key to Economic Growth
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18739 |
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Section : |
SPECIAL SECTION
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| Issue
Date : |
8 / 1991 |
2,213 Words |
| Author
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David Aschauer
David Alan Aschauer is the Elmer W. Campbell Professor of
Economics at Bates College in Maine. He is currently
completing a book on infrastructure economics. |
Over the past forty years the U.S. economy has staged an impressive performance. Our basic level of output of goods and services--the gross national product adjusted for inflation--has risen from just over $1.2 trillion dollars in 1950 to $4.2 trillion in 1990. Of course, during the same period the U.S. population grew by almost 100 million, so there are now more of us consuming the available goods and services. Still, per capita output has climbed at an average annual rate of 1.84 percent per year, from $7,907 in 1950 to $16,530 in 1990.
Yet there are reasons to suspect that what has been true over the past forty years might not hold true for the next forty. One reason for concern is gathered by taking a more careful look backward: During the 1970s and 1980s, the long-term growth rate of the economy sagged 1 percent per year below the average rate maintained during the entire post-World War II period.
We find another reason for concern by looking forward. In 1989, the Census Bureau released projections for the United States that indicate slower population growth over the next forty years. At the same time, the median age of the population will be rising as the baby boom generation ages. In the face of these demographic trends, we need to ask what will be required to ensure that our standard of living will continue to improve in the coming years.
Capturing in any precise way what is meant by our "standard of living" in a single objective measure is a difficult task. Our standard of living depends on much more than the goods and services we buy on the market. It includes our leisure-time activities. It depends on the overall social and environmental climate. But it is common to use per capita GNP as an indicator of standard of living, a convention adopted here.
By definition, the growth rate of per capita output can be broken down into two separate components: growth in the ratio of employment to the population and growth in the efficiency of the labor force (or growth in labor productivity). Given the population, we can achieve a higher standard of living if more people are working or if there is a rise in productivity. For example, during the 1980s, growth in per capita output of 1 and 2/3 percent per year was due to growth in the ratio of employment to population of about 2/3 a percent per year and productivity growth of just over 1 percent per year.
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