The Nation - Selected Editorial

Brad De Long delong at econ.Berkeley.EDU
Mon Jul 20 08:48:47 PDT 1998

>Is there any research that examines or posits a minimum (for social
>stability) long-term productivity growth rate? I have problems believing
>the 1% rate used by the SSA, especially since a 2% rate may aleviate
>most, if not all, of the shortfall problem. Also, it seems that a
>significant proportion (perhaps 30%) of the hypothesized 1% growth rate
>would be eaten up by changes in the age composition of the US

Yep. That's part of the big problem...

I know David Cutler, who was on the advisory committee that came up with the 1% productivity growth rate (and the 0% long run labor-force growth rate).

His view was that past advisory committees since 1973 had been forecasting higher productivity growth rates, and had been repeatedly wrong. The 1% growth rate was in his view most likely to be correct for the next decade, and beyond that who knows...

My suspicion is that 1% is too low, if only because revisions to our statistical system (Boskin report, better attempts to capture productivity growth in the service sector, and so forth) are likely to give us an extra 0.5% per year of *measured* growth as they are implemented. Were I on the Social Security advisory committee, I would have pushed hard for 1.5% productivity growth.

The other key variable is the long-term labor force growth rate, which hinges on what you think of immigration policy (and on whether the native-born population continues to move toward zero population growth). Here I think David Cutler and company are on firmer ground: here in California at least, we are not a very friendly-to-immigrants country these days...

Brad DeLong

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