(Drivebycuriosity) - Economic growth has been disappointing in the recent years. After the 2008 recession the USA experienced the weakest recovery since World War II (
wsj ). Growth had been hold back by high taxes and a lot of regulations. Both worked as a brake and have been slowing down investments, production & consumer spending. If the new government fulfills her promises by cutting taxes and reducing regulation these brakes could be lifted giving way for more growth.
Economic growth also would be rekindled if America would follow the European role model and would privatize state
owned enterprises like airports, harbors, mail & railways (here my post
driveby).
The proceeds could be used to invest into the infrastructure (streets,
railways) which is in a lamentable condition. Privatization and a better
infrastructure could lift the American productivity and inspire more investments.
High-Tech Revolution
If the government policy gets more business friendly - and will avoid a global trade war - we should experience another prosperous period like the epoch 1985 through 2000 which was partly inspired by Reagan´s economic policy. I think that there is a good chance that we will get 4% annual growth for a decade and more because there are strong fundamental tailwinds:
The US economy - and the rest of the world - is
benefiting from a high-tech revolution. There is a deluge of
technological innovations, creating a lot of positive tailwinds for the
global economy in the coming years (
driveby).
We are seeing rapid advances in:
-
Robotics: Companies are using more and more robots to reduce costs and to respond more flexible to the demands of their customers.
For instance robots are welding car parts together and are varnishing
them & Amazon is using robotic systems in her gigantic fulfillment
centers. The
automatization process leads to cheaper & better products and raises the productivity.
-
Self-driving cars & trucks will reduce the number of
accidents and lower costs of transportation, which leads to cheaper
consumer goods. Because they are efficient they waste less fossil
energy - curbing the greenhouse effect.
-
3D printing: Software controlled machines are literally "printing" parts of other machines and devices by
using computational power, lasers and basic powdered metals and
plastics. Soon companies & persons can produce almost anything exactly bespoke for individual tastes with low costs.
-
Nanotechnology: The creation of new materials, built at the
atomic level, could revolutionize everything from chemistry to
aeronautics, like creating new medicines, new fabrics and building
material. For instance scientists are working on a new material which is
much stronger & lighter than steel (
economist).
-
Biotechnology: Companies and university scientists develop new vaccines and cures by adapting or exploiting
processes found in living organisms which could lead to a longer & more healthful life for all of us. Altering plants by
genetic engineering
makes them more resistant
against pests and more tolerant of temperature changes and droughts.
Food gets more affordable and could be enhanced with vaccines against
cancers and other diseases.
- Health technology: Sophisticated
machines improve the quality of
healthcare through earlier diagnosis, less invasive treatment
options and reductions in hospital stays and rehabilitation times. So these technologies improve life quality and productivity.
-
Mobillization of Internet: Smartphones, tablets and
other devices allow everybody permanent access to the world wide web. So we can organize our life better, like better shopping,
improving leisure time, traveling, dating, eating out and more.
-
Internet of Things: Devices like thermostats, TVs,
refrigerators, household appliances are or will be soon connected to the
world wide web which will make our life easier and create new markets
for a lot of companies. Smart watches for instance can be used for 24/7
medical
observation and health monitoring to prevent heart attacks and to
discover other medical problems.
-
Cloud computing: Amazon.com, IBM, Apple, Google and other
companies offer data storage
and processing either for free or for low fees, giving everybody access
to a network of supercomputers. Companies & persons can process and
store huge amounts of data without spending much
money for own data centers.
Falling Information Costs
In general the Internet - including the "cloud" - increases the flow of information
and reduces the costs of data. Data can be gained, processed and
stored faster & cheaper. New ideas can spread faster, encouraging
discoveries and inventions and boost the technological progress. Falling
information costs are creating more markets and are expanding existing
ones.
Restaurants, shops, movie theaters and a lot of other companies are
gaining more customers because they can be more easily found and can
advertise better for their products & services. Applications and
recommendations from friends or unknown reviewers on Amazon.com,
Facebook and other websites can gain interest for many products &
companies which would have stayed unknown without the Internet. I
believe that the falling information costs foster economic growth
because they lift the productivity of companies & persons.
Examples: Internet based travel networks like
Airbnb - a website for people
to rent out lodging - give people additional income by temporarily
leasing or sharing their flats. Their customers can reduce costs for
vacations or business travels which fosters tourism.
Uber, a transportation network company whose
mobile apps connect passengers with drivers of vehicles for hire and
ride-sharing services, enables car owners to earn an additional
income, their customers reduce their travel costs. Big data processing companies like
Hopper are helping people to find cheap flights (
hoppertravel).
I reckon that in the coming years many other new companies will appear
using the Internet to create new industries and markets.
Positive Feedbacks
Many of these technological advances are working together, amplifying
their impulses. These innovations are lifting the productivity of
the economy significantly and are creating new markets & incomes.
And it looks like that the technological progress is accelerating.
Almost daily new products and companies with interesting business ideas
appear. All these developments are adding up and accelerate the economic
growth rate.
The technological progress is also reducing the price of oil and curbing the power of Opec. Today oil is abundant again and relatively cheap. It will stay so thanks to innovations like fracking which are reducing the costs of oil production continuously. Low energy costs are giving consumers world
wide more money to spend for other goods & services. They also translate into low transport costs which curb the prices for food and other goods.
Cheaper energy also restrains the costs to produce steel, cement and many
other energy
intense goods. Today´s situation reminds me of the mid 1980s. Then the oil price also
collapsed and commodities stayed cheap through the year 2000. Cheap
commodities in combination with falling interest rates and a
technological revolution (Internet) lead then to a period of prosperity
(with the exception of 1992 as the first Iraq war caused an oil price
spike which lead into a mild and short-lived recession), the longest
boom in U.S. history (
factcheck). In this period the Dow Jones climbed from 1,000 points onto 10,000 points.
A business friendly government policy in combination with technological progress & cheap oil could create a new epoch of strong economic growth.
Enjoy!
