Reply #118: That's true, but misleading.

[Unvanguard]

Unfortunately, you only reference the Neil Buchanan articles rather than going back directly to the source. He's not lying, but he's not telling the whole truth either--which is not a problem with his article, because the growth argument is not the central point, but is a problem with using it as a guide to the Social Security Trustees' economic approach.

What you really want to look at is the Economic Assumptions and Methods part of the 2010 Report. It explains the GDP issue fairly well. The first thing to remember is that GDP is a product of several factors. The most purely "economic" in the narrow sense is productivity growth. The report does not estimate lower productivity growth than in the past. Here's the relevant quote:

Total U.S. economy productivity is defined as the ratio of real GDP to hours worked by all workers.2 The rate of change in total- economy productivity is a major determinant in the growth of average earnings. For the 40 years from 1968 to 2008, annual increases in total productivity averaged 1.7 percent, the result of average annual increases of 1.7, 1.3, 1.5, and 2.2 percent for the 10-year periods 1968-78, 1978-88, 1988-98, and 1998‑2008, respectively. For 2009, the estimated annual change in productivity is 2.5 percent.

It is most useful to consider historical average growth rates for complete economic cycles, because productivity growth can vary substantially within economic cycles. The annual increase in total productivity also averaged 1.7 percent over the last five complete economic cycles (measured from peak to peak), covering the 41-year period from 1966 to 2007. The annual increase in total productivity averaged 2.3, 1.2, 1.2, 1.8, and 2.1 percent over the economic cycles 1966-73, 1973-78, 1978-89, 1989-2000, and 2000-07, respectively.

The ultimate annual increases in total economy productivity are assumed to be 2.0, 1.7, and 1.4 percent for the low-cost, intermediate, and high-cost assumptions, respectively, and are consistent with ultimate annual increases in private non-farm business productivity of 2.4, 2.0, and 1.7 percent. The private non-farm business sector excludes the farm, government, non-profit institution, and private household sectors. These rates of increase are the same as those used in the 2009 report, and reflect the belief that recent strong growth in private non‑farm business productivity, after the relatively poor performance from 1973 to 1995, is consistent with future long-term growth that mirrors the long-term trends of the past.

So, why, then, the lower projected GDP increases? It has to do, not with economic stagnation per se, but with a lower projected rate of growth in total employment. Here's what the Report has to say on this topic:

The real growth rate in GDP equals the combined growth rates for total employment, productivity, and average hours worked. Total employment is the sum of the U.S. Armed Forces and total civilian employment, which is based on the projected total civilian labor force and unemployment rates. For the 40-year period from 1968 to 2008, the average growth rate in real GDP was 3.0 percent, combining the approximate growth rates of 1.5, 1.7, and ‑0.3 percent for its components — total employment, productivity, and average hours worked, respectively.

For the intermediate assumptions, the average annual growth in real GDP is projected to be 3.0 percent from 2009 to 2019, the approximate sum of component growth rates of 1.1 percent for total employment, 1.7 percent for productivity, and 0.1 percent for average hours worked. This projected average annual growth in real GDP of 3.0 percent can also be separated into an underlying sustainable trend rate of change of 2.3 percent for this period, plus an above-trend growth rate of 0.7 percent that is mostly associated with a relatively rapid increase in employment as the economy recovers and the unemployment rate falls from near 10.0 percent in 2009 to its assumed ultimate level of 5.5 percent in 2018. After 2019, no economic cycles are projected. Accordingly, the projected annual growth rate in real GDP is determined by the projected full-employment growth rate for total employment and the assumed full-employment growth rates for total U.S. economy productivity and average hours worked. After 2050, the annual growth in real GDP is 2.1 percent due to the assumed ultimate growth rates of 0.4 percent for total employment, 1.7 percent for productivity, and 0.0 percent for average hours worked.

Note also that the GDP growth under the intermediate assumptions is 2.1 percent only after 2050. This is about long-term demographic trends, not any conviction on the part of the Report's authors that we are due all of a sudden for perpetual economic trouble.

What long-term demographic trends? This is clarified in the labor force participation section:

The annual rate of growth in the size of the labor force decreased from an average of about 2.1 percent during the 1970s and 1980s to about 1.1 percent from 1990 to 2009. Further slowing of labor force growth is projected due to a substantial slowing of growth in the working age population in the future — a natural consequence of the baby-boom generation approaching retirement and succeeding lower-birth-rate cohorts reaching working age. Under the intermediate assumptions, the labor force is projected to increase by about 0.7 percent per year, on average, through 2019. Thereafter, the labor force is projected to increase by 0.5 percent per year between 2019 and 2050, and by 0.4 percent over the remainder of the 75‑year projection period.

The projected labor force participation rates are not basic assumptions. They are derived from a historically-based structural relationship using demographic and economic assumptions specific to each alternative. However, the participation rates are not highly sensitive to most of the demographic and economic assumptions. Accordingly, the projected labor force participation rates do not vary substantially into the future and across alternatives.

In other words, we can only discount the growth projections of the Report if we have good reason to believe that is demographic projections are wildly wrong--and while undoubtedly they are not exactly correct (the future is not very predictable), they seem perfectly plausible to me. As noted in the above excerpt, the decline in labor force size growth is ongoing already.