In 1938, in the wake of the Great Depression, economist Alvin Hansen coined the term “secular stagnation” to describe the anemic recovery pace of the U.S. economy. He argued persuasively that without government intervention, the economy could no longer grow briskly due to falling population and innovation growth rates. While a well-respected Harvard economist and Washington influencer, Hansen was wrong, of course, as both a baby boom and innovation boom soon followed, ushering in a golden age of U.S. economic growth.
In 1979, with the economy mired in stagflation, President Jimmy Carter took to the airways to scold our nation in his famous “malaise” speech for our loss of American values and work ethic. Additionally, Carter projected global oil depletion by 2011, proposing energy rationing and conservation subsidies. He was wrong, of course, as oil prices fell from $120 a barrel to under $25 by 1986 and the economy experienced a golden age of innovation and economic growth throughout the 1980s and 1990s.
In 2013, noted Harvard economist and Washington insider Larry Summers dusted off Alvin Hansen’s arguments to once again assert that the U.S. economy had fallen into “secular stagnation” due to slowing labor force trends, income inequality, capital-light internet businesses, high national debt burdens, commoditizing globalization, etc. Complementing Summers’ dire prognosis, Northwestern economic professor Robert Gordon concurrently proposed that U.S. economic growth may have ended with the Great Recession, seeing the last 250 years of technological breakthroughs as the exception, not the rule.
With history as a guide, will these doubting Thomases once again cue a Golden Age?
An economy simply equals the size of a workforce multiplied by its output, or productivity. Therefore, to grow an economy, the number of workers must increase, the productivity of those workers must increase, or both. Within the United States, the labor force growth rate has stagnated. Between 1950 and 2000 our labor force grew 1.6 percent annually. Between 2000 and 2050, forecasters project our labor force will grow 0.6 percent annually. If our labor growth falls to 0.6 percent, then attaining our long-run 3 percent annual economic growth rate will require a miracle. Based upon demographics alone, the doubting Thomases may be right this time … unless we can find transformative ways to add workers and productivity.
According to an Oxford study released in 2013, almost half of the jobs in America could be automated over the next few decades. There are two ways of looking at this. The pessimists will consider the implications of 50 percent unemployment. The optimists will consider the implications of increasing our available labor force from 160 million to 240 million equivalent workers. Bet on the optimists. For proof, 320 million industrial workers worldwide labor alongside 1.8 million robots with installations growing 14 percent annually, and yet unemployment rates among industrialized nations sit at record lows and manufacturing employment within the U.S. is actually growing for the first time in decades. Additionally, complementing our growing virtual labor force with the application of artificial intelligence technologies will dramatically increase overall worker productivity. According to a study from Accenture, worker productivity could increase 35 percent into 2035 with only moderate A.I. adoption. That supposes a 1.9 percent annualized productivity growth rate. Adding 1.9 percent productivity growth to 0.6 percent growth in our human labor force plus 0.3 percent growth in our automated labor force (assuming 5 percent penetration by 2035) yields an annualized 3 percent GDP growth for the United States. Sustaining a 3 percent growth rate with our $20 trillion economy will, indeed, feel golden!
Bottom Line: Economists who doubt the growth potential of the U.S. economy fail to account for the miracles of innovation. The incorporation of robotics will increase our labor force growth rate while the infusion of artificial technologies will dramatically increase worker productivity. The original doubting Thomas, economist Thomas Malthus, predicted in 1798 that the world would overpopulate, consume all available resources and shrink into economic misery. Resist the intellectual tendency toward skepticism. After all, less than 200 years ago, we were all farmers.
David S. Waddell is CEO of Waddell and Associates. He has appeared in The Wall Street Journal, Forbes, Business Week, and other local, national, and global resources. Visit waddellandassociates.com for more.