How fast can the economy grow safely?
Estimated conservatively, the new speed limit–the fastest rate the economy can sustain without igniting inflation–is now at least 3%, compared with 2.3% or so in the 1980s. That 3% figure represents a combination of 2% annual productivity growth plus a 1% increase in hours worked. But it could be even higher. If the strong productivity growth of recent years persists, the economy could manage 3.5% growth or more without danger of inflation. Indeed, with information technology–a high-productivity-growth industry–taking a larger and larger share of consumer and business spending, overall productivity should in fact tend to rise. Even now, productivity gains in some of the most innovative industries are still not being picked up by the government statistics. Health care, for example, still shows effectively no productivity growth. Likewise, the media sector–publishing, broadcasting, and printing–is reported with flat or negative productivity gains, because the official stats don’t g
