6 Fears For Future Growth (And 2 Reasons To Be Optimistic)
Cato’s Brink Lindsey recently hosted a discussion on his paper, “Why Growth is Getting Harder.” It was a terrific, wide-ranging discussion on a particularly strong report. The reply by Tyler Cowen, an economist at George Mason, though is especially worth noting for his thoughts on what the future of growth may look like. He offered 6 reasons to be even more pessimistic about America’s growth prospects than even Lindsey, while matching them with 2 causes for optimism.
Reasons to fear for future rates of growth
- The future rate of growth is risky. If growth is a bit higher in America, many of our fiscal worries slip away into varying shades of irrelevance. If growth is a bit lower, our country’s finances are in dire straits. That tenuous balance may introduce enough risk to actually lead to the negative financial outcomes we’re hoping to avoid. Cowen argues that fears over risky growth are already slowing down real growth in Europe.
- What if the “peace bubble” ends? As Steven Pinker and others have argued, we live in a world today that’s blessed with historically low levels of conflict. Economic freedom and prosperity has grown across the world as a result. But what if this present state changes? That’s not to say it will or to what degree, but to point to a need for preparedness and resilience in the face of growing political risk across the world.
- The educational slowdown is worse than we feared. While human capital development has slowed down, especially seen in the average years of schooling for Americans, that’s only part of the picture. The question now is whether students are receiving the right education. And what we’re educating for is matching less and less of what our more technologically-driven economy actually demands. As Cowen points out, “The economy is changing faster than higher education.”
- We have too much regulation today. And what we do have is often misguided or misdirected.
- Climate change will have a downside potential. If pronouncements from the IPCC and others are true, then environmental impacts will be a long-term drag on growth. On that point, Maplecroft recently found that 67 countries representing a third of world output face “high” to “extreme” risks from climate change.
- High energy prices will likely persist. While recent shale energy discoveries are net positives for the United States, oil especially will remain a global commodity incorporating a number of other price factors. The burden of proof rests with those who would argue that energy prices are due to significantly fall in the coming decade. Why does this matter? As Cowen points out, the price of energy inputs have long been significant factors in world growth, beginning with the rise of cheap coal at the start of the industrial revolution all the way to the negative impact of the 1973 oil crisis. We continue to absorb today’s high energy prices reasonably effectively, but they continue to exert a large, often unseen drag on the economy that can’t be denied.
Reasons to be reasonably optimistic on future rates of growth
- Innovation will take on an increasingly global dimension. This is one point that Cowen is particularly skeptical on, but can’t write off. He said that smart thinkers are being educated and finding good employment in more places around the world than ever before. As they are sent through the education pipeline and mature into leaders, we will likely begin to see innovation take on a more global nature than even today. Or as Cowen put it, productivity increases from innovation abroad will make up for the productivity stagnation here in America.
- Computers will become the next general purpose technology. He believes that computers are underrated and are still due to take on the same significance that, say, the steam engine had in radically altering society and the economy. It remains unclear what the timing of such change would be. And while these continued advances will generate a lot of economic growth, they are unlikely to significantly raise middle class incomes (as Cowen has described in greater detail in his book, Average is Over).
Regardless of Tyler Cowen’s thinking on future growth, the conclusion of Brink Lindsey’s paper (which riffs off of Cowen’s own work) remains true:
In the quest for new sources of growth to support the American economy’s flagging dynamism, policy reform now looms as the most promising “low-hanging fruit” available.