Supply Side 2023—Why The GOP Is MIA

You don’t even need a magnifying glass to see that something ominous is happening to the seven decade long productivity trend shown below. Productivity growth peaked 10 quarters ago and now stands 2% below its Q3 2020 level.

Needless to say, the recent downward hook depicted in the graph  has never before even remotely happened. And even when you credit the artificial surge in early 2020, which was ironically caused by massive lockdown furloughs (i.e. output fell far less than payroll counts), productivity growth has slowed dramatically.

The historic growth trend was 2.80% per annum between 1954 and and 1973 and 2.11% during the half century through the year 2000. But the growth rate has now slumped to just 1.05% since Q1 2012—two-fifths of its pre 1973 trend and just half of the per annum gain recorded during the entire second half of the 20th century.

Index Of Nonfarm Labor Productivity, 1954 to 2023

The collapse of productivity growth since 2012 is not merely a statistical curiosity, however. Even the New York Times dyed-in-the-wool Keynesian/statist economics commentator, Paul Krugman, once noted that—

Productivity isn’t everything, but in the long run, it’s almost everything.

That’s more than ever the case now. That’s because the other element of the economic growth equation—labor force growth—is coming to a screeching halt. It seems that blue state women aren’t having many babies and red state politicians have become gung-ho for stopping willing immigrant workers from crossing the borders.

That proposition is rather dramatically illustrated in the graph below. It shows that the 194 million US population of 1965 would have grown to just 251 million at present (green and gray areas) absent post-1965 immigrants and their descendants. That is, once the baby boom fully arrived, existing families implicitly chose to have only enough babies to keep the US population constant as far as the demographers eye can see, but at least through 2060.