We live in the shadow of "secular stagnation," to use a phrase now fashionable among economists. Even assuming a full recovery from the Great Recession, it's widely expected that the economy will grow more slowly in the future than in the past. In part, this reflects baby boomers' retirement, which reduces expansion of the labor force. Pre-recession growth was also artificially boosted by cheap credit. Forecasts have been cut, but they haven't been cut enough, says economist Robert Gordon.
If he's right, this could be our next nasty economic surprise.
Gordon, a respected Northwestern University scholar, contends that mainstream economic growth predictions are wildly optimistic. His own calculations are more restrained. By 2024, he reckons, the economy's annual output (gross domestic product) will be nearly $2 trillion lower — almost 10 percent — than projected by the Congressional Budget Office (CBO). Government debt will be 87 percent of GDP in 2024 instead of the CBO's estimate of 78 percent. Disappointing output will also pressure the Federal Reserve to move earlier against inflation by tightening credit, he says.