OPINION:
The Biden economy finished with a remarkable sprint.
By the summer of 2023, the economy was at full employment, yet over the next six quarters, gross domestic product growth has averaged better than 3%.
That confounds the conventional wisdom among economists at the Federal Reserve and elsewhere who peg potential long-term growth rate at 1.8%.
Demand-side stimulus
Federal pandemic relief permitted households to build extra savings that boosted spending when the economy reopened. President Biden followed with aggressive support for expanded social programs, infrastructure and industrial policies for semiconductors, green industries and electric vehicles.
However, those increased the federal deficit from 4.6% of GDP in 2019 to 7%, and such tactics can’t be repeated without risking international investors balking at an even faster pace of new U.S. debt issuance.
The rate on 10-year Treasurys has risen 1% since the Fed started cutting short-term interest rates in September, and primary dealers in U.S. Treasury securities are challenged to place the current volume of new bonds.
Supply-side gains
Analysts have quickly pointed out that productivity growth also surged over Mr. Biden’s last six quarters.
Workers used the opportunity of the pandemic shutdown to retrain, relocate or at least refocus to switch industries as the economy reopened and the workforce emerged better aligned.
The advent of remote and hybrid work reduced tiring commutes and boosted productivity.
But sadly, those are one-offs, too.
Immigrants’ surprise contribution
During the early post-shutdown quarters, employers complained a lot about labor shortages. Still, they were running down a surge of Americans made jobless by the pandemic. In April 2020, unemployment peaked at 14.8% and the share of adults working troughed at 51.2%.
Many workers delayed or shunned altogether returning to lower-paying jobs in the services sector. Aspects of manufacturing and construction have displayed turbulence in favor of better-paying, more stable employment in new data centers to support artificial intelligence and the green industries that create the electrons it consumes and trades like boiler repair.
The labor market effectively reached full employment by the summer of 2023, but over the next 15 months, businesses added 190,000 jobs a month.
Natural population growth and regular legal immigration could supply only about 80,000 a month, and irregular immigrants increased their representation, especially in agriculture, food processing, construction, hospitality, day care and domestic services.
Mass deportations would tank the economy. If Mr. Trump limited his impulse to booting criminals and those under existing deportation orders and worked with Congress to add visas for another 100,000 new immigrant workers each month, the growth boom could continue.
Growth food
Unimpeded, AI could annually add $1 trillion in new capital spending.
That’s Popeye’s Spinach for Uncle Sam’s economy because successful capital spending increases aggregate demand for goods and services and boosts supply by accelerating labor productivity growth.
Specialized AI agents are emerging that can manage workflow at call centers, handle many customer inquiries without human intervention and train and evaluate employees engaged in more complex activities.
Agents are replacing artists and writers in media and advertising and copy editors in wealth management and financial services, accelerating the development of new drugs and new materials by examining the structures of diseases and desired compounds to more rapidly identify formulas to be tested than can medical researchers and engineers. AI is boosting the potential for fully autonomous robotics to replace factory workers, longshoremen, warehouse laborers and truck drivers. It handles the more mundane aspects of staff supervision like data sharing, allocating assignments, sales forecasting and price setting to permit bosses to focus less on managing processes and more on leading people.
The latter permits large organizations like Google and Citigroup to compress organizational structures, as managers can handle larger spans of control.
AI could raise productivity growth from 0.8 to 1.5 percentage points a year. That rivals the boosts we got from the transcontinental railroads, mechanization of agriculture and interstate highway system.
Exploiting these opportunities will require retraining displaced workers and reconfiguring high schools to prepare graduates to enroll in apprenticeships or directly assume roles, for example, in shipbuilding and green energy, where skills are not growing as rapidly as demand, and into managing AI — programming and maintaining the robots in factories, warehouses and elsewhere.
Instead of cutting taxes and renewing the Tax Cut and Jobs Act, Mr. Trump should be focused on redirecting resources toward vocational training and apprenticeship programs.
Universities’ spending is out of control, often with federal money and disappointing results, and funds to promote apprenticeships and retraining should come from shrinking their resources and enrollments.
Under its best-case scenario, the CBO sees the federal debt held by the public reaching 116% in 2034 but increasing GDP growth by just 1 percentage point, and it stays at its current level of about 100%.
• Peter Morici is an economist and emeritus business professor at the University of Maryland and a national columnist.
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