The Dismal Science Doesn't Signal a Dismal Future
Presidential candidates aren't the only ones talking of the economic apocalypse, unless they are elected. Lost in the coarseness and anger of the primaries thus far is that a leading economist, Professor Robert Gordon of Northwestern, also is deeply pessimistic about our long run economic future in his new book, The Rise and Fall of American Growth.
Gordon points to a number of underlying factors that will not be easily changed by whoever wins the next election: population aging, a slowdown in innovation and its diffusion, and declining educational performance relative to other nations.
We have a different, cautiously more optimistic view, outlined in our new e-book, The Good Economy (available at the Kauffman Foundation and Roosevelt Institute websites). We point to several important factors that the pessimists miss.
Unlike Professor Gordon, who believes innovation has essentially run its course, we argue that the U.S. economy is in the middle of another technological revolution, rivaling the industrial revolutions of the 19th century. One doesn't need to buy into the gee-whiz language of Silicon Valley to recognize that the convergence of enormous and continuous advances in computing power, the Internet of Things, broadband speeds, cloud computing, mobile applications, artificial intelligence, and nanotechnology is not only upending many parts of our economy, but will lead to faster growth in the future.
To be sure, the transition to more rapid growth will take time, but that is not unusual. Electricity took several decades to fundamentally transform the way goods were produced, and how and where people worked and lived. In much the same way, today's tech revolution will inexorably change our economy and society over the next few decades: Not only will we grow more productive, but firms, new and old, will put out a range of new products, services, and medical breakthroughs that no one now can fully foresee.
Cloud computing and mobile platforms, for example, already have dramatically lowered the cost of launching new businesses. New platforms that match consumers with suppliers are revolutionizing business supply chains as well as the nature of work itself. That's what the so-called sharing economy revolution is all about, making it possible for millions of people to become part-time or full-time entrepreneurs, working flexible schedules of their own making, and choosing what, when, and at what price to rent to others.
In the emerging new economy, full time jobs may decline, but the amount of work won't. Rather, we'll see increasing numbers of Americans of all ages who will make their livings by assembling portfolios of contracts on their own terms. Expect existing and new platforms to make it easier for people to secure these assignments, giving them far more freedom in their work lives than they or their parents once had.
Whether income inequality will get better, worse, or stay about the same in this new world will not depend on whether our largest banks are broken up, but instead hinges on how well our educational providers, at all levels, help people become more entrepreneurial while also giving them the skills that will make them marketable.
Of course, good public policies, all grounded in good economics, would certainly help ensure inclusive growth. We believe that with the right leadership, a broad consensus can be forged for updating our aging infrastructure, letting more educated and entrepreneurial immigrants come to this country, simplifying our tax system, and tackling our long-run deficits through prudent compromise along the lines of the multiple bipartisan plans developed several years ago. In addition, our safety net programs - for work, health and disability - can and must be redesigned to suit the new work arrangements, rather than being tethered to traditional definitions of "employment."
Effecting these policy changes, too, will take time, especially given deep partisan divisions at the federal level. In a worst case, populist anti-trade, deficit-busting policies of the extreme left or nativist right being peddled by certain presidential contenders could dilute our optimistic projections, but hopefully not derail them.
But do not lose heart, at least not yet. Real entrepreneurial change happens at the local level. Cities, after all, are built on the foundations laid by successful businesses, all of them new at one point. Fortunately, here politics are not as polarized: mayors and city councils typically want to get things done, and because most Americans do too, local policies favoring entrepreneurship - regulatory streamlining, school choice, and effective public services -- coupled with some positive underlying trends point to a more optimistic long-run outlook than some economists may fear and that is being obscured by the rhetoric on the Presidential campaign trail.
