Can We Just Move On?

Oct. 14, 2013
Various things could be done to accelerate economic growth, to make the Great Recession assume the appropriate relevance of something that happened five long years ago.

Five years ago in this space I wrote my first reactions to the collapse of the global financial markets – which everyone knew then was an historic development, and everyone now realizes is a continuing factor in the work we do, the choices we make, and the opportunities we seek. It’s casually described as the Great Recession. That’s as much analysis as most of us can stand before the discussion turns cynical or political, or conspiratorial, or some further discursion from rational evaluation. It’s a difficult message to convey neatly, in part because “recession” is a technical term and defining the start and end of one is a matter of much economic precision. You’ll find sources now that will insist the Great Recession is long over, and yet it continues to shape financial and economic policy, and the fears that grew from those tense weeks five years ago are used to define regulatory policies that enfold businesses and individuals, probably for decades to come.

Not seeking to ignite new arguments on that particular point, I will nevertheless maintain that the U.S. economy (and even the global economy) is not expanding in any way close to the potential that is indicated by human needs (see for example, the consistently weak results for unemployment) or economic potential (e.g., the tepid increases in U.S. GDP over the past several quarters.)

There are various things that could be done to accelerate economic growth, to make the Great Recession assume the appropriate relevance of something that happened five long years ago. A study posted a few weeks back by the McKinsey Global Institute (the research arm of the management consulting group) listed five things that could promote greater economic growth, which the authors predicted would generate 5.3 million new jobs and $2.2 trillion in domestic GDP by 2020. The first step would be to promote shale oil-and-gas activity, which already has more than doubled since 2007. Shale projects hold the potential to add 1.7 million new jobs total and $690 billion/year to GDP, and (importantly) it offers incentives and opportunities to other industries where energy costs are a burden to growth. It’s widely stated anecdotally that the U.S. stands as the world’s largest producer of natural gas and oil (about 22 million barrels/day in July, according to the Energy Information Administration) and that suggests further benefits in global trade, and even global security if one is interested in debating the point that far. The barriers to this potential are environmental and regulatory anxieties that go back even further than 2008.

The McKinsey authors also listed the U.S. trade deficit in knowledge-intensive industries, meaning highly engineered products and systems like automobiles, airliners, medical devices, and petrochemical products. Enhancing global competitiveness in such industrial sectors to the 2000 level which would create up to 1.8 million new jobs and add up to $590 billion/year in GDP by 2020.

Next they listed the growth potential of more effective use of computing and analytics (Big Data) as an opportunity to save administrative costs and add $325 billion/year in GDP.

Infrastructure investment holds the potential for 1.8 million jobs and $320 billion/year U.S. GDP growth, simply based on backlogged projects for roads, transit, and water systems, the study claimed.

The last area of potential growth is in what the McKinsey authors call “talent development”, meaning the prospect of expanding industry-specific training, and increasing the numbers of graduates in STEM fields. They also stated that elementary and secondary education (K–12) would benefit from better classroom instruction and the availability of digital education tools. These, and other improvements in education, could add $265 billion/year to U.S. GDP by 2020.

A close look at the list will make it clear that growth in each area would mean decline in something else. Money allocated for some things will be redirected from other things, and while the return would be great there is a cost. I suspect there is something for everyone to like and dislike on this list, but a singular point to be examined is whether, as an economy, we have locked our ourselves into a recessionary mode, one that avoids risks and rules out opportunities based on invalid assumptions or unwelcome conclusions.