Who Cares?

At Ricochet James Pethokoukis warns us to prepare for an America with an economy growing faster than we might expect:

What might things be like in, say, 2040? The expert consensus predicts the same old, same old economic growth, about the same pace as we’ve seen throughout the 2000s. A (maybe, nearly, hopefully) 2 percent economy. Real GDP will likely grow at about half the pace of what it did in the last half of the 20th century.

And there are good reasons for this forecast, a combo of demographics (an aging society with lower birthrates) and weak productivity growth. On that latter point, the Robert Gordon argument laid out in “The Rise and Fall of American Growth” represents the baseline in mainstream thinking. All the low-hanging fruit of innovation has been picked. New inventions like the iPhone and even autonomous vehicles pale against the old such as electrification and the combustion engine. Sorry, Millennials.

But what if the future is already here, just not widely distributed? What if artificial intelligence and advanced robotics spread throughout the economy and improve, boosting worker productivity and economic growth and incomes? How about a 1990s-style tech boom that keeps on booming? That’s just the optimistic prediction of the consultancy Capital Economics, as outlined in its first long-term forecast.

My answer to that is who cares? Let’s do a little thought experiment.

Imagine that just one person, say Bill Gates, in the United States’s income rises by a trillion dollars over the next 20 years and everybody else’s stayed the same. Most of the money stays in the financial system, a lot is spent on good works outside the U. S., and a little leaks into the U. S. economy.

Good for him but it doesn’t mean much to me one way or another. That’s the extreme case.

Now look at the graph at the top of this post. That’s the Gini index, a measure of income inequality, in the U. S. over time. It has been going up—meaning incomes are becoming less equal over time. When I was a kid it resembled that of most Western European countries. Now it’s more like Saudi Arabia’s.

My answer to Mr. Pethokoukis is that a growing economy is great but not nearly enough. We need a society in which the income is spread around a little more evenly and there’s no obvious way to get there.

My point is that there is a perceptual component to economic growth and my advice to the top .1% of income earners to whom most of the incremental income is accruing is that it’s in your interest for other people to feel that they have a greater stake in economic growth.