In the “Lower Potential Growth: A New Reality” report the authors pointed out:
- Potential output growth has declined since the global financial crisis
- Decline reflects impact of aging; lower capital and productivity growth
- Policy action required to boost productivity, foster capital growth, and offset the effects of aging
“Policy action” assumes a level of cooperation among leaders inside many countries, and that has not been the case — ever. Obviously, changing the direction of aging is impossible. Slowing or stopping many of the trends is impossible.
The IMF experts put most of the root causes of the problems in the recent deep recession. That, it has been assumed, should not have dampened strong expansion in huge economies, led by China. Whether or not the authors of the IMF report have considered it, pollution in China, coupled with slow demand for goods it manufactures, have undermined its GDP improvement. Europe has never entirely recovered from the recession. The United States is the only major economy that has shown signs it is back on track. Ironically, just a few years ago, many analysts believed slow growth in the United States would be a primary drag on world GDP. That has not proved true, but America cannot carry the balance of the world on its shoulders.
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The IMF report’s authors draw this conclusion:
The evidence presented in the study suggests that absent policy action to encourage innovation, promote investment in productive capital, and counteract the negative impetus from aging, countries will have to adjust to a new reality of lower speed limits.
Sadly, the IMF is right, although perhaps not entirely for the right reasons.
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