How Fast Can We Grow?

by Stephen K. McNees
January/Februrary 1991

Nearly thirty years ago, Arthur Okun posed the question, "How much output can the economy produce under conditions of full employment?" He offered a "simple and direct" answer that now, with the benefit of hindsight, seems outmoded and inadequate. This article argues that a minor modification of Okun’s procedure based on demographics can adequately account for changes in the potential growth rate over the last 35 years and provide an idea of what to expect in the next ten years. Specifically, it is suggested that changes in the composition and rate of growth of the working-age population can account for the low rate of growth of potential GNP in the 1980s as well as suggest that it will revert to a more typical 2.5 to 2.75 percent by the late 1990s.

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