This point is controversial, however, and is the source of much the debate over potential economic growth. Proponents of the higher potential growth view argue that productivity growth has increased and will continue to do so. As a result, they believe the conventional estimates of potential growth are simply too low. But the fact remains there is virtually no hard evidence at the present time of any increase in long-term productivity growth. Research done at the Federal Reserve Bank of Kansas City, the Board of Governors, the President's Council of Economic Advisors, and elsewhere has so far failed to detect any significant increase in productivity growth in the 1990s.
Last year is a case in point.
The Commerce Department has reported that productivity grew only 0.7 percent in 1995, on a fourth quarter over fourth quarter basis. Nonetheless, there is a belief that recent technological advances and corporate downsizings should be enhancing productivity growth. For whatever reason, though, such as the possibility of a lengthy time lag between technological advances and productivity increases, the existing data offer little support for this view. For monetary policy purposes, fortunately, the Federal Reserve does not require a precise estimate of potential economic growth. Under present circumstances, with the U.S. economy operating at or near full capacity, an increase or decrease of actual GDP growth relative to potential would soon provide evidence of a need for monetary policy actions.