ECONOMIC

Chart 4Gross National Product, Actualand PotentialBILLIONS OF 1972 DOLLARS (RATIO SCALE)1,6001,500SEASONALLY ADJUSTED ANNUAL RATES1,400NEW POTENTIAL GNP1,3001,2001,100OLD POTENTIAL GNPV1,000ACTUAL GNP900800i i i i i i i i i i 11 11 1 i i i 11 i i 1 11 i 1 i i i 1 i i i 1 i i i 1 i i i1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976NOTE.-SEE TEXT IN CHAPTER ON "PRODUCTIVITY GROWTH AND RESOURCE UTILIZATION" FORDIFFERENCES BETWEEN THE OLD AND NEW POTENTIAL GNP.SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.labor input grew by only 1.5 percent per year. Therefore, although therapidly growing labor force implies a high rate of growth in potential output,reductions in the average workweek and changes in the age-sex compositionof the labor force indicate that the increases are somewhat lower.Productivity behavior since 1973 raises a further question about thecurrent level of potential output. In the most recent downturn, the productivitydecline started earlier and was much more severe than might havebeen expected from earlier recessions. The data indicate that part of this decreasemay have been a permanent downward shift in the level of productivity.A conservative estimate of this shift lowers potential output to $1,330billion in 1976. Thus the GNP gap may be about $30 billion lower thanindicated.There is reason to expect such a drop in productivity to accompany theOPEC oil embargo and the subsequent quadrupling of crude oil prices. Thenew high energy prices should have made some capital equipment and someenergy-intensive production processes inefficient, with a consequent loss ineconomic capacity. This loss would not be included in capital stock estimates,because the method normally used for estimating the aggregate capitalstock depreciates new investment over a fixed period and does not adjustfor short-term changes in obsolescence.55