Atlanta Fed President and CEO Dennis Lockhart, in a speech to the Louise Blouin Foundation in New York City, discussed whether the economic dynamism of the United States is declining. Lockhart looks at three interrelated aspects of economic dynamism - job reallocation (job creation and destruction), productivity growth, and new business formation. He did not directly address monetary policy in his speech. He did note that the unemployment rate does not fully capture the degree of labor market underutilization.
Lockhart explained that job reallocation is a good thing in an economy that continuously reallocates resources from sector to sector, industry to industry, firm to firm, and job type to job type. However, since the early 2000s, this job reallocation has slowed.
Lockhart noted that the rate of productivity growth has been significantly below its historical norm, which he attributes to a temporary spell of low productivity that will correct itself when demand improves. But he notes a concerning possibility is that the slow advance of productivity reflects a fundamentally less dynamic economy.
The third aspect of economic dynamism Lockhart mentions is new business formation. Most new businesses start small and stay small, but a few new firms desire to grow substantially, and an even smaller fraction of these actually succeed and take off. These high-growth survivors - "gazelles" -
generate a lot of new jobs and contribute to raising overall productivity. Lockhart says that new business formation has also slowed in recent years.
Lockhart thinks that public policy can help foster greater dynamism by removing obstacles to growth and entrepreneurship and contributing pro-growth actions that address investment in human capital and productive infrastructure. And monetary policy can deliver appropriately favorable interest rate conditions that can promote a faster economic recovery.