The Growth to 1975

At the heart of most arguments about the growth of the U.S. economy is a basic assumption by many economists that the U.S. must speed up just to keep pace with the giant strides of the past. Last week in a calm, carefully documented report, James W. Knowles, longtime (ten years) staff economist for the Joint Congressional Economic Committee, reported that the assumption is away off base. The U.S. economy gained only an average 2.9% annually in gross national product in the half century between 1909 and 1959, after taking into account inflationary price rises that average 2 1/3% a year (TIME, Feb. 2, 1959). Considering the nature of today's economy, the U.S. can expect to top the old rate by a considerable margin during the next 15 years--even if it just cruises along the way it is going.

Depression v. Stability. Checking back over 50 years, Economist Knowles worked out the G.N.P. figures to constant 1954 prices and plotted them against a potential G.N.P. (see chart), estimated from the growth of the labor force, average man-hours of work, the nation's total investment in plant and equipment. He found that only in times of great boom has the U.S. achieved the top limits of the growth potential. During the Depression of the 1930s, the spread between the actual G.N.P. and the potential was so wide that it took the U.S. until the middle of World War II to catch up. Subsequent recessions have also held the U.S. below its top potential. Even 1959's G.N.P. of $425.6 billion was $31 billion less than its potential.

In charting the future, Knowles makes a key assumption of his own: that the U.S. knows enough about its economy and has built so many safeguards that it will not again fall into a major depression similar to the 1930s. With increased stability, says he, the U.S. can count on a "very substantial increase in the growth rate, affecting the rate of growth of the labor force, the rate of decline in hours of work, the rate of accumulation of capital, the speed with which new technology is incorporated in actual production processes and the composition of demand."

A, B or C? Projecting his indicators into the future, Knowles charts three possible roads for the U.S. economy, taking into account the possibility of more or less serious recessions along the way. If the U.S. lives up to its top, or A potential, and keeps unemployment at an average 3%, it will grow at the rate of 5.2% annually between now and 1975. If it only keeps to a B level, with an average 4% unemployment, it can expect a 4.7% average growth. If it goes along at a C level, with 5% unemployment, as at present, it will still average 4.2% annually.

At that, says Knowles, the projections are conservative. They take no account of progress in education, the accelerated rate of research and development, more attention to the best means of production. Concludes Knowles: "Our economic growth is within our own control. Without changing our economic system in any fundamental way, without instituting elaborate controls and without Government-imposed forced high rates of capital accumulation," the U.S. economy can grow at a rate as high as 5.2% a year.

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