Getting Back to Growth
With signs of a new recession growing on the horizon, it can be tempting to focus primarily on the short term actions that the US might need to do to manage the negative impact on the economy.
However, the more important actions that the US needs to do require a longer term mindset. Our economy has had more than a decade of positive economic growth, the longest period of growth on record, in fact. But that rate of growth has actually been quite tepid, averaging about 1.1% since the start of the Great Recession in 2007, according to the Bureau of Labor Statistics. Now, with a possible new recession coming, we need to ask not only how to end the recession, but also how to grow faster when we are able to come out of the recession.
We used to grow faster. The BLS reports that our rate of productivity growth from 1947 to 2007 was 3.7%. To accelerate our longer term rate of growth, we need to think past the coming recession to the longer term, particularly about our innovation infrastructure. Our innovation infrastructure consists of the hard and soft assets in the society to generate, disseminate, and absorb new innovative knowledge. This requires investments in hard assets, like 5G connectivity, intelligent electrical grids and up-to-date airports, roads, and train stations, as well as investments in soft assets, like training, skills, universities and other forms of human capital development.
In recent decades, our investment in our infrastructure has declined. During the days of Sputnik in the 1950s and the Apollo moon program in the 1960s, the US made major investments in its innovation infrastructure. Dwight Eisenhower built the interstate highway system in the 1950s. Harry Truman got the GI Bill passed, that funded college education for millions of returning soldiers from World War II and the Korean War. While the US government still spends about 20% of the US GDP, there has been a strong shift away from infrastructure investments, towards social safety net programs. And private companies have moved away from providing training programs to incoming workers.
Gaps in our innovation capabilities that result from this underinvestment are increasingly obvious. Education and training are clear examples. Our elementary and secondary education systems fail to produce enough scientists and engineers. While our best companies continue to lead the world in many industries, the gap between the Best and the Rest is widening dramatically. The rapidly rising costs of colleges and universities are due in part to the decline in government support of higher education. More and more institutions of higher learning are balancing their budgets on the backs of wealthy families from both inside and outside the US – at the expense of access for many in the lower and middle classes. And students often graduate today with $50,000 or more in student debt, a heavy burden to bear at the beginning of one’s career.
The key point about infrastructure investment is that it can provide positive returns to the whole society. To take but one example, higher speed internet can reduce frictions in commerce, and increase activity for all of us. It can be a platform for new companies to create new possibilities for us all to experience. These new experiences can easily earn many multiples of the cost it will take to bring 5G everywhere. We simply require the political will and wisdom to make the investment. And, with interest rates approaching historically low levels, the cost of financing this investment is surprisingly affordable.