HOW FAST CAN THE US ECONOMY GROW

Can the U.S. economy grow much faster than the two-point-something per cent it has in recent years? Standard economic analysis suggests that it cannot. But many influential business leaders and journalists - and even a few economists - have embraced a radical economic theory that argues that the old speed limits to growth are obsolete. According to this so-called new paradigm, the rise of digital technology and the gr owth in international trade and investment have qualitatively altered the rules of the game. Rapid technological change means that the econo my can grow much faster than it used to; global competition means that a booming economy will not produce high inflation. Many people in the business community take the new doctrine very seriously, notes MIT ec onomist Paul Krugman. Unfortunately, he says, it is riddled with gapin g conceptual and empirical holes. Krugman lays out in clear terms the macroeconomic principles that explain how markets interact and why the re are limits on growth. Essentially, at a time of full capacity utili zation, growth is dependent on increases in the number of workers and in their productivity. In the United States, both are growing sluggish ly. In addition, Krugman takes on the argument that official statistic s are underestimating productivity growth. Even if it were true, he sh ows, it would not support the case for breaking the speed limit. Likew ise, he explains how global competition has not changed the way in whi ch economies react to excessive monetary expansion. We would all like the U.S. economy to grow faster than it has, says Krugman, but all the evidence suggests that it cannot.