Such treading water will persist for some time since private domestic demand is still not sufficiently robust to outweigh an aggressive fiscal tightening. The Bank expects the U.S. expansion to average 2.5 per cent over the next few years (compared to 3 per cent in the decade prior to the crisis). Bottom line, the U.S. economy is not what it used to be.
In an intriguing paper prepared for a conference last year sponsored by the Federal Reserve Bank of Boston, Professor Nathan Rosenberg of Stanford documented how, in the past, it often took a considerable period of time for the necessary synergies to develop between different forms of capital and technologies. One example is the invention of the dynamo in the mid 1800s.