Our economy has always moved in cycles of expansions and contractions.  We have completed 33 business cycles since 1854, and 11 just since World War II1.  Our post-war cycles have ranged from over 10 years to under 2 years.  They have averaged roughly 6 years, about 5 years of expansion and 1 year of contraction.  The net result of all these ups and downs has been an average Gross Domestic Product2 growth rate of 3.24% a year since 19473.


But, since the end of our last recession in mid-2009, our growth has average only 2.10% annually, over 1/3 below its long-term average 3.  For several years, economists explained this away as simply a slower than normal recovery from what had been our worst economic downturn since the 1930s.  They took a “wait until next year” attitude in the belief that a return to 3.0% plus economic growth was just over the horizon.  But after some 7 years of waiting, it is beginning to look like patience is not the solution.

Economies are powered by 2 engines:  growth of their labor force and growth in the productivity (output per hour of work) of their labor force.  Prior to the Industrial Revolution which started around 1760 in England’s textile industry, almost everything was done by hand with manual labor.  The only way to increase output was to add more workers.  Therefore, the country with the largest population could become the largest economy.  In 1700, India and China with populations of 165 million and 135 million respectively accounted for well over 50% of world output.  Britain with only 8.6 million people produced less than 3.0% 4.

But, the Industrial Revolution separated economic power from population as manufacturing activity went from hand production to machines.  This led to a great productivity (output per hour of work) boom which England eagerly embraced while both India and China turned inward and largely closed their economies off from the outside world and the productivity revolution which was to make England rich.  By 1870, the average per capita income in Britain was 6 times higher than in India and China, making England the world’s greatest economic power4.

A second Industrial revolution, roughly between the end of the U.S. Civil War (1865) and the start of World War I (1914), boosted the U.S. to the world’s most productive economy, surpassing Britain in per capita income to become the greatest economic power of the 20th century5.

Our 3.24% average Gross Domestic Product (GDP) growth rate since 1947 was powered by a 2.20% annual productivity growth rate and 1.00% population growth6.  But, over the next decade (2016-2026), the Congressional Budget Office (CBO), a highly respected economic analysis organization, estimated our productivity growth rate at only 1.40% annually and our labor force growth at 0.5% a year, resulting in average GDP growth of 2.00% a year.  The Federal Reserve’s economic staff and many private economists agree with the CBO’s assessment 8.

The CBO prefaces its projections with: “if current laws generally remain unchanged”.  The implication seemingly being that if we are not satisfied with their 2.00% growth projections, then we can change the laws to get results with which we would be satisfied.  What could we do to get our growth rate back up to 3.00% or higher?


The CBO estimates our labor force growth rate at 0.5% a year over the next decade compared to our previous 1.00% average and our productivity growth at 1.40% versus 2.20% previously.  The obvious solution to a 3.00% plus growth rate is to increase our labor force growth by 0.50% a year and our productivity growth by 0.80% a year, back to the levels that generated the average 3.24% GDP growth rate for over 60 years.

With a work force of just under 160 million people, a 0.5% annual increase would amount to around 800,000 more workers each year.  There are over 7.3 billion people in the world.  Does anyone seriously doubt that we could find 800,000 people each year among those 7.3 billion with the labor market skills we need and an intense desire to come to the U.S.% ?

As for productivity growth, there were 80,035 pages of new government rules and regulations published in the Federal Register7 in 2015 and there has been an average of 78,500 pages added each year over the past decade.  Surely we can slow the avalanche of regulations enough to provide our scientists, engineers, and entrepreneurs with the incentives they need to make new discoveries, create new products and start new businesses to re-accelerate our productivity growth back to its long-term average level.

We believe the future of this country is as bright as it has ever been.  We have serious problems but they have simple solutions.  If you are going to have problems, those are the kind to have.

Bill Boyd

Bill Boyd, CFA


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.




  1. National Bureau of Economic Research Data
  2. Gross Domestic Product is the total value of all the goods and services produced by the economy.
  3. Bureau of Economic Analysis Data
  4. The Economist 9/24/2011
  5. The Second Industrial Revolution: Wikipedia
  6. The Bureau of Economic Analysis and The Census Bureau
  7. The publisher of the Daily Rules, Proposed Rules and Public Notices issued by the federal government.
  8. Congressional Budget Office: “The Budget and Economic Outlook 2016 to 2026” published 1/25/2016.