Citigroup is just out with its big year-end analysis, and the economic team offers a fairly upbeat forecast:
With improving private sector balance sheets and falling energy costs, we believe that — provided near-term fiscal tightening is gradual — US growth will gradually transition to 3%+ from late-2013 and into subsequent years. US real GDP per head probably will regain its 2007 level in 2013 or 2014, and rise about 9-10% above the 2007 level by 2017 — clearly outperforming Japan’s “lost decade” (real GDP per head rose by 5% from 1992 to 2002).
But investor Jeremy Grantham is telling clients that the good times really are over for good in America. The days of 3%-plus GDP growth — the U.S. has grown by 3.4% a year since WWII — are a thing of the past thanks to a) declining population growth, b) declining productivity in the service sector, c) rising commodity costs, and d) climate change. In his recent newsletter, Grantham also cites the work of economist Robert Gordon, who recently published a study questioning the future of U.S. economic growth due to a variety of factors including declining education, income inequality, globalization, and debt overhang. Grantham: “The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever.”
Grantham has a deep argument that deserves more attention than I can give it at the moment. But I will say this: U.S. economy policy is far, far from optimal — whether it’s tax, regulation, immigration, or education. So I choose to view his gloom and Gordon’s as a Warning of What May Be. Let’s assume the worst and act to prevent it.