One forecasting challenge is we do not know what the 11th or 12th year of an economic expansion looks like. We’ve never been here before. Our baseline forecast calls for ongoing, but slowing growth as we run into supply side constraints. However, that is more theory than data. I’ve been wrestling with two big questions in recent months that I’m putting to our advisors in the coming weeks. Last week we covered a short-run growth question, while this week I will lay out the long-run growth question.
Over the long-run, after we get away from near-term cyclical dynamics, there are two primary sources of growth: labor and capital.