The Remarkable Steadiness of US Economic Growth

It is remarkable but true that per capita US economic growth has hewed close to a trendline of 2% per year for the last 150 years.

Here’s a recent figure showing this pattern from Charles Jones in his paper “The Outlook for Long-Term Economic Growth,” as prepared for the annual symposium at Jackson Hole hosted by the Federal Reserve Bank of Kansas City (August 2023, full symposium proceedings including Jones’s paper available here, Jones’s paper also available as NBER Working Paper #31648).

Notice that the left-hand axis of the figure is a logarithmic (that is, a proportional) scale. On such a scale, a 2% growth rate appears as the straight dashed red line. The path of the US economy has sometimes been a little above this line, and sometimes a little below below. But the fact that the 2% annual growth rate fits the long-term pattern so well is quite remarkable. This pattern isn’t a new discovery: for example, here’s a previous post from 2012 discussing it.

Jones presents a succinct summary of possible reasons why future growth rates might rise or fall. He tends to be a pessimist about future growth rates, for two main reasons for pessimism. 1) Growth comes from new ideas that can spread freely, and more people means more possibilities that some of them will develop these new ideas, so slower population growth will result in slower technological growth. 2) Some of the forces that contributed to US growth in the past, like an overall rise in US education levels and a rise rate of investment in R&D and new ideas, seem to have stopped rising or at least slowed dramatically.

Conversely, he also offers three potential reasons for optimism. First, economic development in previously poor countries like China and India means a larger pool of people who can participate in the search for new ideas, which can then spread to the US economy. Second, the US has been experiencing improvements in the allocation of talent as members of groups that have been historically underrepresented in science and technology have been playing a growing role. Third, artificial intelligence and increased automation may together improve the growth rate.

For myself, I think I have a pretty good grasp on the US economy with about a 2-3 year lag: that is, I’m currently feeling as if I have a reasonably good grip on what happened in the US economy up through mid-2021. Coming to an understanding of the past is hard enough for me; I’m not in the business of future predictions. But for those who are predicting either a resurgence or collapse in long-term growth, I would suggest that they have some respect for the fact that a 2% annual growth trend for the US economy has persisted through some very dramatic changes in the last 150 years.