|In the fall of 2007, when the U.S. economy first seemed in peril, I began answering reader queries here on the Business Desk. I still do so occasionally, but this page has expanded to include posts from eminent economists, "far-flung correspondents," and a variety of voices that have intriguing and/or useful things to say about economics, broadly defined. Please feel encouraged to respond to any and all of them.|
Reader Response: What Will Drive America's Future Growth?
Paul Solman: Viewer John David wrote these questions in an email back in April, responding positively to an interview with marketing expert Paco Underhill, which aired again last night. I only just got around to answering him, which began the following exchange. I thought it might be of general interest to you Business Desk readers.
JOHN DAVID:...What is the next step for America's consumer economy now that the spending/credit spree has backfired? Where will growth come from?
PAUL SOLMAN: Where WILL growth come from? Asia, some are now saying: "bamboo" (not "green") shoots. Maybe. Maybe not. But here in the States, the latest savings rate -- nearing 7 percent after idling down around zero percent just a few years ago -- does not bode well for a homegrown spending/credit recovery.
JD: I predict more diversified sources of growth in the economy instead of just housing and finance.
Once housing values stabilize and consumers feel comfortable with their rainy day savings and retirement accounts, they will return to spending on consumer goods first. This is the largest, most affluent economy in history and in the world. Americans' appetite for leisure spending is undiminished, just delayed. Don't ask economists about this, they don't have a clue. Ask consumer spending experts like Walmart and P&G.
Health care. This is pure demographics. Baby boomers are just approaching old age, plus universal health care is in the cards. Demand for services will only increase during the next 10-20 years.
Re-education. Among land, labor, and capital, the focus has been on capital for too long. And unemployment has been treated as a humanitarian "safety net" issue instead of a waste of valuable resources and an economic cost in lost taxes, spending, and productivity. Our unemployment compensation "system" has been described as "crazy quilt." It needs change and a portion should be considered a loan, so the unemployed have a stake in the process.
Energy efficiency/environmental cleanup. From CFL light bulbs to electric cars, the public will spend on this if they're sold on it. When plug-in hybrids hit the market (Chevy Volt, etc.) and the 50 percent of drivers who only care about getting around town realize they forget about buying gas and stick it to OPEC, the lines will form. A national energy policy that deals with consumers would help a lot.
As for growth from exports (Bamboo shoots), it's too hard for me to account for all the variables involved. I agree with you, maybe. But since 70 percent of the world still doesn't have indoor plumbing, emerging markets remain a huge potential market.
I really appreciate you and your partners in crime at The NewsHour as my only refuge from "Iran is still in turmoil...we think!" and "Michael Jackson is still dead!"
PS: It's the transition I worry about (though, to be fair, nature and nurture seem to have conspired to make me a worrier par excellence). It's the bifurcation of America about which I worry most. I take it that, barring accident, neither you nor I are likely to find ourselves in economic trouble. But I look at the investment that has not been made in America's human capital and the extent to which technology and foreign labor are displacing the tasks of yore in an increasingly globalized world and I keep wondering: how are the 70 percent of Americans without 4-year degrees going to fare? To what extent was the current crisis, even, caused by the bifurcation (of income and wealth) as those above (speaking broadly) increasingly wound up lending to those below, for want of more profitable things to sell them?
JD: First, my perspective on the 70 percent (?) without a 4-year degree comes from my own various experiences with education; Northwestern BA-Bus/Evanston '66, LSU MBA '67, my daughter has a degree in art from Washington U. here in St. Louis, I did the hiring for my own small business for 25+ years until retirement, and I'm a part time adjunct in the St. Louis Community College system, Forest Park Campus, where the student body is diverse and mostly low income.
In brief, I think the value of a 4-year degree, along with the economic benefits of home ownership, has been oversold. Eighty percent of first jobs are in small business and I would bet money they seldom require a college degree.
A degree is less important than having a marketable skill and good personal qualities (on time, reliable, does good work, gets along with others, doesn't steal, etc.) My students are always amazed to hear that Bill Gates was a college dropout and Rush Limbaugh never got past high school. I'm not anti-higher education, just education with no purpose.
I realize the numbers lately indicate middle incomes haven't grown while upper incomes have and in my view this is a part of the transition from a domestic to a globalized economy. You can invest wealth anywhere there's a good return; it's much harder for a family to pull up stakes and go where the jobs are -- especially if they can't sell their house. Until the recession, our economic/business system was cranking out enough jobs to cover women entering the workforce, immigration, outsourcing, and foreign competition, while maintaining only 5 percent unemployment. The 70 percent will do just fine if they get good career advice like, "Worry first about being able to pay your bills, then about being a degreed person. And while you're at it, take an aptitude test and build on it."
Your opinion? There is a group who is left out and deserves to be part of a national employment policy; the working poor. Ever read Ehrenreich's book, Nickel and Dimed?
As to the current crisis, I'm still collecting info about it and the file is already 1" thick. But so far it looks like a perfect storm involving 5 percent of home buyers all the way up the chain of realtors, appraisers, mortgage lenders, Wall Street, and Washington D.C.
PS: It is precisely Ehrenreich's 'Nickel and Dimed' about whom I'm worried. Like you, I put no great stock in most 4-year degrees, though as to your examples, it might be pointed out that Bill Gates went to Seattle's Lakeside School, which is about as close to a college experience as a secondary education is like to get.
Like you, I'm also sure that "good personal qualities" are vital to success. But where do you learn them? Often, in college.
I would add that "good personal connections" are also a very significant factor in economic success. They too are very often made at 4-year institutions of higher learning, even when the learning itself may be not be so very lofty.
As to small businesses creating all those jobs you write of -- maybe they do, or maybe it's just an artifact of the data (too technical an argument to elaborate here). But in either case, the job loss since the onset of the Great Recession has moved America back to roughly the same number of jobs we had at the turn of the millennium. In other words, we sure haven't been creating jobs of late, while the population has been increasing. And while the fate of investment bankers and newspaper journalists has taken center stage (on Wall St. and in headlines), the poor are always with us, and always with us in greater numbers during recessions.
Or, the "relatively poor," given how rich a country we are. Or the "working poor," to use your phrase. The data say they benefit powerfully from having more and more advanced degrees. Logic says so as well.
I'd add one more point, quoting the beloved Adam Smith: "Consumption is the sole end and purpose of all production." But, as your emails imply, what KIND of consumption quite matters, The Da Vinci Code or Leonardo himself? Limbaugh or La Rochefoucauld? Vivendi or Vivaldi? DeBeers or Vermeer? I don't mean to sound hi-falutin', but the more of an education you get, the more likely you are to savor what appear to be life's subtler, perhaps more sublime, gratifications. Or at least think that you do. That's worth something all by itself, no? And I bet it doesn't hurt in getting a good job either.
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