Excess Returns

3% Inflation Isn't the Problem | Jim Paulsen on Why 2% Growth is the Crisis

13 snips
Dec 2, 2025
Guest
Jim Paulsen
Join veteran market strategist Jim Paulsen as he dives into the critical themes shaping our economy. He argues that the focus on inflation might be misguided, emphasizing the silent collapse of real GDP growth over the past two decades. Paulsen highlights the decline in job creation and productivity, raising concerns about a prolonged period of low economic spirits. He also discusses the shifting dynamics of demographics and policy, and why deflation could be a larger threat than inflation. Tune in for insights on how these forces may impact markets heading into 2026.
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INSIGHT

Productivity Has Also Weakened

  • Productivity growth slowed from ~2.5% (1950–2005) to ~1.6% since 2006, shaving a big chunk off potential GDP.
  • Paulsen notes measurement issues but stresses the drop meaningfully reduces overall growth capacity.
INSIGHT

Falling Monetary Velocity Signals De‑risking

  • Monetary velocity has been declining since ~2000, implying each dollar generates less GDP than before.
  • Paulsen interprets this as widespread de-risking and cash hoarding that undermines growth.
INSIGHT

Inflation Is Modest; Deflation Risk Rises

  • CPI (3%) and PPI (<2%) are below long-term averages, yet policy treats inflation like a 1970s problem.
  • Paulsen argues the real risk today is toward disinflation/deflation given weak demand and labor trends.
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