Reviving Economic Growth

It seems to me….

Ever since the Industrial Revolution, investments in science and technology have proved to be reliable engines of economic growth. If homegrown interest in those fields is not regenerated soon, the comfortable lifestyle to which Americans have become accustomed will draw to a rapid close.” ~ Neil deGrasse Tyson[1].

The U.S. economy has shown remarkable recovery following the 2008 financial crisis. It has created 14 million private-sector jobs since 2010. Unemployment has dropped to under 5 percent; the number of people filing jobless claims hit a 42-year low last year. The Dow Jones industrial average has more than doubled under Barack Obama, among the strongest stock market performances under any president. Housing and construction markets are strong, auto sales are booming, and even wages have begun to rise[2].

While performing better than almost any other country, the central dilemma for the U.S. is that the gains from growth, low inflation, and technological productivity are spread broadly across the entire population. While all have gained from lower-cost goods and extraordinary technology, the costs in jobs lost and the wage reductions are concentrated among a smaller group of people. It is the voices of those people, understandably angry, that are being expressed in much of today’s election campaign rhetoric.

Additionally, the U.S.’s economic prospects have failed to meet even the most pessimistic early predictions[3]. The Federal Reserve predicted in 2011 that U.S. real GDP growth would, at worst, increase by 3.5 percent in 2013 and expand between 2.5 percent and 2.8 percent annually afterwards. The Fed has revised its predictions downward every year since with its most recent estimated prediction being for only 2.2 percent annual growth in 2016 and 2 percent growth in following years. Employment growth, while relatively strong, also remains lower than forecast; the percentage of Americans between ages 25 and 54 who are actually working is over three points lower than its pre-crisis peak.

The U.S. economy might be suffering from what some economists have labeled a form of “secular stagnation”. The concept of secular stagnation is simple: it’s basically that the economic problems facing the U.S. are not a product of the “business cycle”, the ebb and flow of boom times and recession (hence the “secular” part), but may well comprise permanent encumbrances on the modern economy.

I disagree with many economists, such as Paul Krugman, who at least partly attribute this to a decrease in population growth. While a population growth rate decrease does exist, people are living longer and consuming patterns have changed to reflect those differences. Increasing globalization also has resulted in a growing percentage of the world’s population who are adopting a higher standard of living, now are consumers reflecting that higher standard, and creating corresponding economic opportunities.

While some economists, such as Robert J. Gordon from Northwestern University, believe slowing technological innovation has failed to increase productivity comparable to what occurred in the past, this also is not true; innovation is occurring at a significantly faster rate, having a higher impact on all aspects of life, and technological advances have now become the greatest single determinant related to economic slowdown. Computers, communications networks, robotics, and other factors have contributed to greater automation allowing a smaller number of people to accomplish more work. Another round of revolutionary advancements in areas such as artificial intelligence (AI), 3-D printing, and the Internet of Things (IoT) are about to once again impact everything we do and how we do it. While somewhat counterintuitive, market capitalization for technology stocks are commonly higher than for significantly larger product manufacturers employing numerous workers, constructing large facilities, and purchasing substantial quantities of equipment. Each iteration of software product release seems to be created by a decreasing number of people, does more with fewer users, and reduces costs permitting companies to do more for less.

It also has resulted in concentration of a higher percentage of wealth among a smaller percentage of people. Increasing income inequality results in higher savings rather than consumer purchases. When 70 percent of the U.S. economy is dependent upon such purchases, the greater the inequality, the greater the economic impact: less spending and less demand ultimately results in less production and hiring.

Other economists, such as Harvard Professor Kenneth Rogoff, believe post-recession economies are being dragged down by high levels of debt that will hold back growth until deleveraging is complete. Former Federal Reserve Chair Ben Bernanke chalks up slow post-recession growth to a global savings glut where investment is held back by various trade and economic policies and that everything would be fine if those policies were corrected.

It isn’t that so many prominent economists are totally wrong, they simply fail to fully appreciate the impact of technology preferring instead to attribute economic performance issues to causes they better understand. In this, they are similar to military generals who always try to fight past wars. Many people want to believe that a large problem must have complex and correspondingly large causes. It is not unusual however for large problems to have simple solutions as is true for economic recovery following a recession – this is not to disparage or pretend the cause was not complex, only that the possibly solution is relatively straight-forward. Usually the problem is finding the political will to do it.

There is much that could be done to stimulate growth but entail public spending increases of which Congressional conservatives promoting austerity disapprove. Larry Summers, former president of Harvard University and former U.S. treasury secretary, believes the fundamental problem in the U.S. economy is a lack of demand (too much saving, too little spending) and similarly advocates a major boost in infrastructure spending as the single, central solution. Summers is correct in his belief that higher government investment would improve some of the bleak economic fundamentals powering stagnation: high investment and possible related debt in a secular stagnation environment is required for as long as slow moving factors are not being improved. There are other justifications for such investment. Our deteriorating infrastructure constrains growth. Improved education and research would result in new technology and industry creation. Clean energy and health innovations would be of general benefit….

Summers has pointed out that, as with any building, deferred maintenance simply ensures you have a much larger bill when things actually break down. While high-levels of debt eventually proves detrimental, it is better to borrow money at current low rates and spend it now to boost growth and kick-start a virtuous cycle of demand. He believes future generations would be better served owing more money in long-term bonds at low rates in a currency they can print than they would be inheriting a vast deferred maintenance liability.

The cost of borrowing money at current historically low interest rates would enable the U.S. to upgrade its infrastructure at a relatively low cost. Economic growth would result in tax revenue increases lowering the U.S.’s overall debt-to-GDP ratio. Economic austerians have to accept that sometimes growth only results from investment. Now is such an occasion.

That’s what I think, what about you?

[1] Neil deGrasse Tyson is an American astrophysicist, cosmologist, author, and science communicator.

[2] Zakaria, Fareed. What Sanders And Trump Agree On, Washington Post, http://fareedzakaria.com/2016/03/11/what-sanders-and-trump-agree-on/, 10 March 2016.

[3] Davidson, Jacob. This Theory Explains Why the U.S. Economy Might Never Get Better, Time, http://time.com/4269733/secular-stagnation-larry-summers/?xid=newsletter-brief, 25 March 2016.

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About lewbornmann

Lewis J. Bornmann has his doctorate in Computer Science. He became a volunteer for the American Red Cross following his retirement from teaching Computer Science, Mathematics, and Information Systems, at Mesa State College in Grand Junction, CO. He previously was on the staff at the University of Wisconsin-Madison campus, Stanford University, and several other universities. Dr. Bornmann has provided emergency assistance in areas devastated by hurricanes, floods, and wildfires. He has responded to emergencies on local Disaster Action Teams (DAT), assisted with Services to Armed Forces (SAF), and taught Disaster Services classes and Health & Safety classes. He and his wife, Barb, are certified operators of the American Red Cross Emergency Communications Response Vehicle (ECRV), a self-contained unit capable of providing satellite-based communications and technology-related assistance at disaster sites. He served on the governing board of a large international professional organization (ACM), was chair of a committee overseeing several hundred worldwide volunteer chapters, helped organize large international conferences, served on numerous technical committees, and presented technical papers at numerous symposiums and conferences. He has numerous Who’s Who citations for his technical and professional contributions and many years of management experience with major corporations including General Electric, Boeing, and as an independent contractor. He was a principal contributor on numerous large technology-related development projects, including having written the Systems Concepts for NASA’s largest supercomputing system at the Ames Research Center in Silicon Valley. With over 40 years of experience in scientific and commercial computer systems management and development, he worked on a wide variety of computer-related systems from small single embedded microprocessor based applications to some of the largest distributed heterogeneous supercomputing systems ever planned.
This entry was posted in 3D, 3D Printing, AI, AI, Artificial, Artificial Intelligence, Artificial Intelligence, Austerians, Ben Bernanke, Debt, Debt, Deficit, Depression, Depression, Disparity, Dow Jones, Economy, Elections, Employment, Employment, Federal Reserve, Federal Reserve, GDP, Globalization, Globalization, Harvard, Income, Inequality, Intelligence, Internet of Things, Internet of Things, Investment, IoT, IoT, Jobs, Kenneth Rogoff, Larry Summers, Long-Term, Northwestern University, Obama, Paul Krugman, Population Growth, Recovery, Robert J. Gordon, Secular Stagnation, Stimulus, Technology, Unemployment and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

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