The fallout from the financial crisis, oppressive taxes and over regulations that burdened business for so long are receding, and the American economy is poised to deliver on the promised prosperity of the digital age.
Since last spring, GDP growth has been much stronger than during the Bush-Obama years. As importantly, the character and content of growth is changing.
The Obama recovery depended heavily on subsidies to boost employment in health care, a bailout for the auto industry and huge investments in the oil and gas sector instigated by new recovery methods.
Going forward limits on Washington’s financial resources will put health care providers, insurers and drug companies on a diet — along with politicians who buy votes with bogus promises of free stuff. Their jobs machine for semi-skilled functionaries in moribund claims offices and receiving rooms will slow significantly.
Having replaced vehicles that grew old during the Great Recession and successfully shifted drivers to more durable and fuel-efficient SUVs, automakers’ annual sales are plateauing. To continue growing, Detroit must reinvent itself — roll out electric vehicles that match the convenience of gas powered machines and self-driving solutions — and become less hidebound as competition emerges from well-funded Chinese startups. It must place less emphasis on the number of vehicles sold and rely more on high-value artificial intelligence and updating vehicle software.
The recovery in oil prices revived drilling but petroleum investment is not growing at the pace accomplished during the earlier boom. The recent swoon in oil prices and impatience among investors compelled producers to learn to extract oil more efficiently. And much of the infrastructure that supports an expanded oil and gas sector was put in place earlier in the decade.
Stepping up to lead growth will be the old reliable — new home construction — as older millennials between 28 and 38 migrate to the suburbs and smaller cities.
Punitive zoning regulations and building codes imposed by liberal mayors to appease urban elites in New York, San Francisco and similarly tony locales have made new home construction too costly and big city rents unaffordable. Meanwhile, lower gas prices and more durable motor vehicles are making the suburbs attractive again.
Millennials who have established decent careers will have more bedrooms and less need to pay private school tuition too often compelled by raising children in cities. Look for the middle class birth rate to tick up, and nothing creates demand for everything from strollers to smartphones like more babies.
It won’t be a return to the easy prosperity of Ward and June Cleaver, but a more robust economic environment and strong families do have mutually-reinforcing qualities the critics of capitalism and traditional values fear to admit.
Artificial intelligence has been with us since at least the 1980s — remember Word Perfect and Lotus 1-2-3? Those took automation from the factory floor into offices by easing repetitive tasks and automating chores that adhere to well defined rules — typing, drafting real estate contracts and bookkeeping.
The technologies that drove the last two decades — the Internet, home wireless applications and smartphones — largely made lives easier but work not much more efficient. The Bush and Obama recoveries not only generated many fewer jobs but also a lot fewer improvements in productivity than was the norm during post-World II decades of the 20th century.
Now the programming behind apps on handheld devices is about to make jobs requiring a lot more judgement and creativity more automatable and productive. For example, adjusting insurance claims, diagnosing illnesses, exploiting changing patterns in consumer preferences and robotics to design more appealing and less costly goods and services, and resolving tax disputes — weep not, IRS agents are as cold as computers anyway.
With internationally competitive business taxes and a lighter touch in government regulation, productivity — and the possibilities for wage gains among those who upgrade skills—are about to jump into hyper growth. Those will resurrect America’s export prowess if Washington negotiates smart trade agreements with genuinely reciprocal access into foreign markets.
Similar to the Bush and Obama years, America has seen periods of lethargy before — the early decades after the Revolution, the mid-1870 to early 1890s and the Great Depression—but each time new technologies and entrepreneurship rescued the America dream.
Have faith—the old magic isn’t dead.
• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.