A long-term view of the United States inflation

That is from a paper by Carmen Reinhart & Kenneth Rogoff (January 2013). They explain:

It is probable that in 1913, while financial panics were not uncommon, high inflation was still largely seen by the founders of the Fed as a relatively rare phenomenon associated with wars and their immediate aftermath. Figure 1 plots the US price level from 1775 (set equal to one) until 2012. In 1913 prices were only about 20 percent higher than in 1775 and around 40 percent lower than in 1813, during the War of 1812. Whatever the mandates of the Federal Reserve, it is clear that the evolution of the price level in the United States is dominated by the abandonment of the gold standard in 1933 and the adoption of fiat money subsequently. One hundred years after its creation, consumer prices are about 30 times higher than what they were in 1913. This pattern, in varying orders of magnitudes, repeats itself across nearly all countries.

You can download the paper here: Shifting Mandates: The Federal Reserve's First Centennial.

Is U.S. Economic Growth Over?

This paper raises basic questions about the process of economic growth. It questions the assumption, nearly universal since Solow’s seminal contributions of the 1950s, that economic growth is a continuous process that will persist forever. There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely. Rather, the paper suggests that the rapid progress made over the past 250 years could well turn out to be a unique episode in human history. The paper is only about the United States and views the future from 2007 while pretending that the financial crisis did not happen. Its point of departure is growth in per-capita real GDP in the frontier country since 1300, the U.K. until 1906 and the U.S. afterwards. Growth in this frontier gradually accelerated after 1750, reached a peak in the middle of the 20th century, and has been slowing down since. The paper is about “how much further could the frontier growth rate decline?” 

The analysis links periods of slow and rapid growth to the timing of the three industrial revolutions (IR’s), that is, IR #1 (steam, railroads) from 1750 to 1830; IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and IR #3 (computers, the web, mobile phones) from 1960 to present. It provides evidence that IR #2 was more important than the others and was largely responsible for 80 years of relatively rapid productivity growth between 1890 and 1972. Once the spin-off inventions from IR #2 (airplanes, air conditioning, interstate highways) had run their course, productivity growth during 1972-96 was much slower than before. In contrast, IR #3 created only a short-lived growth revival between 1996 and 2004. Many of the original and spin-off inventions of IR #2 could happen only once – urbanization, transportation speed, the freedom of females from the drudgery of carrying tons of water per year, and the role of central heating and air conditioning in achieving a year-round constant temperature. 

Even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007. These include demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.

That is from a new paper by Robert J. Gordon (August 2012) which has received a lot of attention. Many of the recent innovations in the US, such as Facebook or Google, are practically free for users, which means that it has been more difficult for these companies to seize the profits than it was for GM, for example, to seize the profits of auto sales. The nature of the goods is different. What we see however is that since people can use Facebook and Google in developing countries for free, these inventions are increasing productivity outside the US. Probably we are seen a new era in which the gains of productivity are being democratized around the word [which might benefit the US economy in the long run]. Thanks to the US for that!   

How do you assess the overall condition of the U.S. economy right now?

The econ-bloggers's answers:

Source, HT: Mostly Economics.

A discussion of the new trade theory in the context of the US economy

There are a lot of ideas to go around, and I'm not inclined to argue that American cities are "vulnerable" in the sense that Silicon Valley is on the verge of evaporation and reconstitution in India. At the same time, it's clear that agglomeration is important in these industries and that there are increasing returns to scale. So in the end, Mr Smith's policy recommendations are the right ones; economic success now depends on loosening immigration rules, making it easy to build in cities, in part by investing in the infrastructure that supports them, and continuing to support research and education.

Source