Back in 2009, Bill Woolsey suggested that central banks target NGDP growth at 3%. Over the previous few decades, NGDP growth had averaged 5% in the US and closer to zero in Japan (at least since 1993.) There was no reason to think that Woolsey’s suggestion would be taken seriously. But now Woolsey may get his way.
The Economist reports that NGDP in Japan has risen by 3.1% over the past year. What makes this especially impressive is that the growth rate of the working age population in Japan suddenly plunged sharply right as Abe was elected. I.e., he faced “headwinds”. If Abe had continued the monetary policy regime of the previous few decades, NGDP growth would have fallen to negative 1%. Matt Yglesias has a great post on Japan–pay particular attention to the working age population graph (falling fast), and the labor force participation rate graph (rising fast).
Meanwhile in the US, trend NGDP growth is falling close to 3%. The Hypermind market predicts 3.2%, but that’s during an expansion year with falling unemployment. When the dust settles, I expect Europe to also average about 3%, or perhaps a bit lower. And I think it’s likely that Japan will slip back below 3%. Australia and Canada will be a bit above 3%. These are the sorts of trend growth rates we saw under the gold standard, but in those days it was all real GDP growth. Now it’s mostly inflation.
So three percent is the new normal for NGDP growth, and also for 30-year bond yields in the US. You might say, “5% is so 20th century.”
PS. Of course that’s the developed world. In the India/Indonesia/China triangle, where most people live, 6% real GDP growth is the new normal, while NGDP growth depends on inflation.
PPS. Good to see the Peronists lose in Argentina—one down, two to go (i.e. Brazil and Venezuela.)
PPPS. I wrote this before the Venezuelan elections; it seems the socialists are on the way out there as well. As Vox recently pointed out, a country with Saudi-type oil reserves can’t provide its citizens with toilet paper. I hope the Brazilians don’t impeach their President; change should occur through elections. Still it’s good to see Latin America moving away from the views of people like Corbyn.