However, the pace of this long economic expansion is very slow. The real economic growth rate over the last seven years is an average of 1.9% annually. In addition, during the preceding economic downturn there was the Lehman financial crisis, and the US economy contracted by at least 4%. So with such minimal growth, neither the financial markets, business, nor voters seem to feel that the economy has improved. In fact, the perception is that the economy has been in a long period of stagnation. This long stagnation had a strong influence on the Republican Party nomination of the real estate mogul Donald Trump, who is not a politician, as their candidate for the presidential election this year, as well as on the struggles with popularity of the Democratic presidential candidate, former Secretary of State Hilary Clinton.
One of the experts who first pointed out this long-term stagnation as a structural problem of the US economy in November 2013 was former Secretary of the Treasury Lawrence Summers, who served as Director of the National Economic Council (“NEC”) during President Obama’s first term in office. At that time, there were many people who disagreed with his argument that the US economy chronically favors savings over investment, creating insufficient demand, which leads to continuing low economic growth. Three years later, however, the investment stagnation and low economic growth have continued, and the long-term stagnation is a reality. Furthermore, the investment shortfall continues, and the growth of labor productivity in the US economy has declined, so that the potential growth rate has fallen to below 2%.
Some decline in the potential growth rate compared to the past is inevitable, since the population is also gradually aging in the US as well, with the large group in the baby-boomer generation reaching retirement age. During the long-term stagnation, however, even the current working-age population has faced long periods of unemployment, and labor capability is lost as more and more people leave the labor market. In fact, the percentage of the working-age population that has given up seeking employment is higher now than before the financial crisis. The result is that the potential growth rate has fallen more than the amount expected due to the aging of the population.