Low Growth May Be Here To Stay

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Low growth may be here to stay.” That’s the dispiriting headline on one of Megan McArdle’s latest blogposts. Most Americans grew up in a country in which economic growth averaged nearly 4%. Now it seems like we’re stuck in an era—or at least a half-decade—in which growth has averaged 2%. That may not sound like much difference. But it is. Thanks to compound interest, 2% annual growth produces something like 19% growth over a decade, while 4% annual growth produces 48% growth over a decade. With 4% growth most people experience earnings increases over time and few people experience earnings decreases. With 2% growth lots of people experience earnings decreases and many fewer experience earnings increases—which tend to be smaller.

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