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Shifting Our Focus Could Jumpstart Growth

August 11, 2015

The economy isn’t growing as quick or as big as we’d like. We’re in the midst of the slowest economic recovery on record, marked by subpar growth. A boost to our GDP would help, and the two ways to do it are to have a bigger population (more workers) or increase productivity.

Well, the population isn’t going up, so productivity must.

 

While the numbers reflect a low-growth environment, it’s not because we’re lacking innovation or creativity. Look at all the new companies and industries that didn’t exist even a few years ago – Uber, SpaceX, Facebook and so on.

 

We’re not growing well because we’re allocating our resources improperly – and I’m talking specifically about capital. Downward manipulation of interest rates, income reductions and savings losses have limited the ability of many people to invest in start-up businesses.

 

Most people start businesses with their own money, or loans from friends and family. We hear a lot about the glitz and glamour of venture capital, but the reality is most start-ups are bootstrapped by founders. So when income and savings are reduced on Main Street, entrepreneurial opportunity nationwide diminishes.

 

Maybe more hours equals greater productivity? Well, we’re working 0.2 hours longer today than in 2005. That 12 minutes might not seem like much, but multiply it by millions of workers and thousands of days and it equals 50 hours per work per year. If we cut back to the 2005 workday, 2% more workers would be needed to match output levels.

 

The laws of supply and demand never go out of style, but in this new economy, maybe old thinking doesn’t apply. These are complex issues to be sure, but something is needed to boost productivity AND worker incomes. Reallocating capital could be an important first step in those aims.

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