John P. Hussman, Ph.D.
In the decade and a half since the late-1990’s, the U.S. economy has undergone a fundamental shift. The signs of this shift can be observed at the foundation of our standard of living, as both accumulation of productive capital and participation in the labor force have buckled. What obscures this fundamental deterioration is that activity at the surface still appears quite stable. It’s important to understand why this is so.
The standard of living of a country is measured by the amount of output that individuals are able toconsume as a result of their work. The productivity of a country is measured by the amount that individuals are able to produce as a result of their work. Over time, growth in the standard of living is chained to and limited by growth in productivity. Productivity, in turn, rests on two factors: a productive capital base, and an active pool of productive domestic labor. The accumulation of productive factors is what drives long-term growth. When the most persistent, most aggressive, and most sizeable actions of policymakers are those that discourage saving, promote debt-financed consumption, and encourage the diversion of scarce savings to yield-seeking financial speculation rather than productive investment, the backbone that supports a rising standard of living is broken.
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