CNBC’s Rick Santelli talks with Rob Arnott, Research Affiliates chairman & CEO, about “unrealistic” GDP growth expectations, explaining how a shrinking labor force puts that growth rate closer to one percent, according to his calculations.
Rob Arnott video and transcript below
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let’s get to rick santelli with some insight on how to get back to some real growth ahead of that gdp number that’s coming.rick? yes. and that really is what it’s always about, it’s about owth and usually growth is very much tethered to jobs. i would like to welcome a special guest, many people keep up with rob arnott. thank you for taking the time to be our best today. in the past i have used many analogies about fed liquidity and how distant geraniums do get a splash. i guess the way you put it ilike even better. you’re looking at the past growth rates in the country, looking at current growth rates, and looking at our expectations or the fed’s expectations and in your opinion the combination of those two things sometimes results in bad policy. maybe you could put it all in your words, sir. sure. well, i would liken quantitative easing and deficit spending to open fire hydrants at curbside. they drain resources from theneighborhood, from the broad macroeconomy, and anyone who has buckets cse to the fire hydrants do just fine. for deficit spending, that means public sector and those who provide goods and services to the public sector do fine. for quantitative easing, those in the financial services arena do fine and the broad macroeconomy just has its resources drained dry. that’s most unproductive, and a lot of it is driven by totally unrealistic growth expectations and the misguided efforts to meet those expectations through misguided policies. what do you think in your opinion the real growth rate of the country will be over thenext three to five years, just ly speaking? i think the structural growth rate over the next 20 to 30 years is closer to 1% than the3% that peopleharbor on illusion is normal. over the next three to five years it could be better than that because we have a bigoutput gap and closing the output gap could mean that closing that gap brings faster growth than the 1%, but the structural growth of 1% makes a lot more sense than 3%. if we demand that our policy delivers 3%, it’s not going to the 3% has been a myth all along. the last 40 years we’ve seen 2% growth, not 3%. and as the graph that you have put up on the screen shows, we’ve had a demographic tailwind. we’ve had the lowest support ratios in world history. those are being replaced in the years ahead by a shrinking rate of growth of the labor force. if labor force grows 1% a year slower, there goes 1% of gdp growth taking it from 2% to 1%. as the workforce grows older, older workers are more productive. well, that’s wonderful. peak productivity is reached in your 50s, but peak productivity like any other peak is where you stop growing going up and start going down. so your contribution to gdp is at its peak but your contribution to gdp growth when you’re at peak productivity is zero. rob, i’m going to have to shut us down there because you have a lot of brilliant things to say, but they only a lot me so much time. brilliance aside, but i certainly would like to get you back in a couple weeks to maybe digest how the world looks once we get some of these gdp revisions. thanks for taking the time today. thank you so much.