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Economic Growth: How Much is Enough?

March 1, 2020 | Commentary

  • Market analysts tend to obsess on the most recent quarterly GDP figures as a guide to future market direction.  How one frames the same data often determines whether it is supportive of bullish or bearish opinions.
  • China has been growing faster than the United States for decades, reflecting a very low starting level and the embrace of more market-oriented policies in the post-Mao era.  The fact that the growth rate is declining is a concern to China bears.  China bulls can take comfort from the large absolute gains every year.
  • Economic growth fundamentally arises from population increases, capital spending and technological change.  Without immigration the U.S. growth story through history would have been considerably different. 
  • There is no simple answer to how much growth is enough.  Each country’s path depends primarily on the starting point, demographics and investment.  Short-term fiscal and monetary efforts to boost growth for political reasons tend to have little permanent effect and can lead to inflation, market bubbles and the inevitable correction.

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