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HOW DOES GROSS DOMESTIC PRODUCT GROW?
May 01, 2017
Population Demographics Will Work Against President Trump's Plan

A major variable in the determination of GDP (Gross Domestic Product) is the growth of the labor force.  What a nation produces can be thought of, in simple terms, as the number of hours worked multiplied by the output per hour (productivity).  It is a documented fact that the growth rate of the U.S. labor force is declining and is expected, by the U.S. Bureau of Labor Statistics, to only increase by .5% per year over the coming decade.  This is slower than it has grown in past decades and is due to a combination of many demographic factors, including the relative aging of the population.

President Trump and members of his cabinet have stated that once his agenda items are signed into law, the country will be on its way to 3%-4% growth.  As our viewers know, we have written many times on the anemic sub 2% economic growth of the Obama years.  President Trump intends to reverse the trend of lower growth by 1), Repealing and replacing the ACA (Affordable Care Act), which has thus far been rejected.   2) Shrinking regulations, including Dodd Frank. 3) Lower taxes for individuals and corporations, both large and small. 4) Repatriation of $2 tn. to $ 3tn of corporate cash residing abroad. 5) Implementing a national infrastructure rebuilding plan that will replace many roads, bridges, airports and other major items in desperate need of repair.

What President Trump left out of these 5 “agenda” items is the fact that the only way to double the growth in GDP is to increase population enough that more people enter the labor force.   The increase in the labor force should also coincide with an increase in productivity. Anything that President Trump does that inhibits growth of the part of the population that could become part of the labor force (such as curbing legal immigration) will have a negative effect on the increase in growth that he seeks to achieve.

Please understand that President Trump is expressing his position of doubling the growth rate of GDP with U.S. population demographics as a major road block.  Due to the aging of the “baby boomers”, 10,000 potential labor force participants are retiring every day.  According to the Bureau of the Census, about 5,800 people are added to the U.S. population daily.  That is the net difference between births, deaths, and immigration.  This is hardly the situation that took place in the mid 70’s, 80’s and 90’s when “baby boomers” entered the workforce in great numbers and the economy grew rapidly as a result.  Thus, Presidents Reagan, GWH Bush, and Clinton had relatively great economies in their presidential years, from a growth standpoint. 

President Trump needs to understand that the population demographics are working against him, as never before, with fewer and fewer people entering the workforce.  Policies that he and his cabinet espouse need to reflect the fact that our economy needs more, not less, workers.  Those workers should be as highly skilled as possible, so that the productivity side of the equation is also a tailwind.



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