Four Factors Essential to U.S. Economic Growth

History teaches us that four factors are essential to maintaining a vibrant, healthy U.S. economy: individual savings, reliable institutions, innovation and productivity growth.

The United States has experienced remarkable economic growth over the past century, largely driven by these factors. Sustaining that growth in 2025 and coming decades is likely to require a concerted focus on those fundamental drivers.

Savings – It’s well-established that higher savings rates contribute to faster economic growth by providing the capital needed for investment. Empirical studies substantiate the causal relationship between gross domestic savings and GDP growth in both advanced and developing economies. Retirement accounts, like 401(k)s and Individual Retirement Accounts, encourage higher savings by providing potential tax benefits.

Institutions – Strong institutions, such as the banking and court systems, and adherence to the rule of law are critical components to consider in determining long-term economic outcomes. They structure economic opportunity and can promote an environment conducive to innovation. The Organization for Economic Cooperation and Development advocates for strong rule of law not only for sound business, but for good investment climates.

Innovation – The accumulation of capital is an important component of growth, as is innovation. Each one reinforces the other, with more innovation tending to boost capital returns, and more capital often enabling greater investment in innovation. Keeping U.S. financial markets robust and having access to a broad range of capital is critical. The Kansas City Federal Reserve has advocated for less of a tax burden to increase the productivity of capital.

Productivity – Technological advancement that allows worker productivity to increase can be enhanced by advantageous tax laws and vibrant venture investing—also potentially helped by fewer regulations and favorable capital-gains tax rates. The United States risks falling behind other nations if it fails to prioritize investments into research and development, STEM education and policies to attract top talent. Strengthening the linkages between university research and commercialization is also meaningful to maintaining America’s competitive edge.

Going forward, policymakers and the public should consider focusing on these fundamental drivers of growth. The new administration’s first six months should give insight into just how much of a priority they will be.