President Donald Trump’s claims that he has delivered the best economy ever ring hollow to anyone knowledgeable about the numbers—the economy has accomplished 3% growth over four quarters and better many times before. Still, how the president managed to accomplish this pace, with so many Doubting Thomases pulling at his heels, merits some serious examination.
The liberal-dominated economics profession tells us the economy cannot sustain 3% to 4% growth because of slowing productivity and labor force growth.
Northwestern Professor Robert Gordon’s argument appears widely embraced—all the good things have been invented. Smartphone apps are nice amusements but are not productivity enhancing in the manner of moving assembly lines. And a falling birth rate and aging population mean we simply could not add a lot of new workers.
The dismal scientists alibi Trump’s 3% as a sugar high—the jolt of the tax cuts has temporarily goosed consumer spending—but businesses are not buying new machinery at the pace tax-cut advocates promised.
What they may be missing is an economy growing in profoundly different ways than in the past. And even if the president’s troubles with Congress keep him from further implementing his program, the next president will inherit an economic engine with a lot more potential than only recently believed.
Last year, the number of new automobiles and homes sold—big items in the growth equation until the financial crisis—essentially flatlined.
Younger Americans are learning to drive, and moving up to car and home ownership at later ages. They have social media FB, -7.33% to congregate, Amazon AMZN, -4.69% to buy essentials and Uber UBER, +1.79% to get around.
Onerous student debt delays big purchases, marriage and children, and building sites near urban job centers are ever more expensive.
Although investment in machinery to make more cars, houses and other traditional stuff is advancing slowly, other forms of consumer and business spending may be doing a lot better.
Artificial intelligence devices and software in homes and businesses—productivity-enhancing smartphone/tablet apps and computer programs—are multiplying like bees among budding wildflowers.
Last year, the gross domestic product originating from the motor vehicle and parts sectors jumped nearly 12.7%. With the number of vehicles sold virtually constant, much of the additional value is for safety and experience—enhanced technologies that auto makers are putting into dashboards.
Businesses these days do need some machinery and computers as platforms for new technology but the truly big investments may be tougher to measure—those are in-house training for employees. As businesses grow, especially in the services sector, they are buying robots and scanners but they need to reskill workers to maintain them and manage the software.
Not always able to find new hires with requisite training, businesses are searching employee databases for adaptive folks receptive to upskilling. WalmartWMT, +0.50% is restructuring to employ fewer but more highly paid store managers and more customer-responsive sales associates. Others like RockwellROK, +0.84% are putting some new hires through intensive training.
Stronger growth and greater reliance on technology rather than brawn are creating new opportunities for women, older workers and the disabled. All these help sustain the adult labor force participation rate, which declined rather precipitously during the Obama years.
The growth potential for the economy is simply the sum of productivity and labor-force growth—during the Obama years those sunk to 1% and 0.5% —but thanks to artificial intelligence and broader opportunities, those jumped to 2.4% and 1% percent for the year ending the first quarter of 2019.
We could keep up those numbers if the Democrats in Congress stopped trying to remove Trump and both sides worked for compromises on an infrastructure program that included enhancing technology access as well as the usual highways and subways, and immigration reform to emphasize skilled workers similar to point systems in Canada and Australia.
During the Reagan-Bush-Clinton era, the nation endured long periods of divided government and deep ideological divisions between the left in the Democratic Party and conservative Republicans. Economic growth averaged 3.4% for two decades—exactly the potential that the sum of Trump’s recent labor force and productivity growth implies.