Ever wish you could time-travel back to an earlier, simpler era? Many folks do. We differ only in how far back we want to go.
This year’s intense presidential campaign only adds to our nostalgia.
Hillary Clinton supporters long for the 1990s… when Bill was president and the economy was booming. Many Donald Trump voters have an earlier destination in mind… maybe the 1950s, when we had few foreign military entanglements and American industry led the world.
I have bad news for both groups: Those good times aren’t coming back.
Post-WWII conditions were ideal for growth
The economic surge that led up to the 1990s was a result of demographic and technological developments we can’t easily repeat.
The US economy boomed after World War II because entire nations had just been flattened. Someone had to rebuild them. The US, having won the war largely undamaged, had capacity to spare.
Our good times continued into the 1960s and 1970s as the Baby Boom generation added millions of talented, educated workers to the labor force. Large numbers of women also began working outside the home, enabling further growth.
Then in the 1980s and 1990s, one invention—the microchip—unlocked technological change that enhanced productivity and connected everyone through the Internet.
Did government policies contribute? Sure. Tax cuts and deregulation helped, but they weren’t the key. Forces far more powerful than politics were the real drivers. That’s why political change now can’t bring back those good times.
The demographic shift is a big problem
As economist Samuel Rines recently said on the Mauldin Economics site, “The good ole days were frankly a nearly perfect storm of economic benefits colliding at once.” The Wall Street Journal ran a similar story, “Why the Economy Doesn’t Roar Anymore.”
Why can’t it happen again?
For one, we won’t have another baby boom unless the Millennials get much busier than they have been so far. And even then, it would be decades before their offspring could make a difference.
It’s possible we will see technological breakthroughs that enhance productivity. But up to this point, technology has done the opposite by reducing aggregate productivity and replacing human workers.
Rines says these headwinds will subside eventually, but it could take a long time. Meanwhile, we may be stuck in a seemingly endless slow-speed zone.
Fed Policy has hurt the average American
Central bank policy certainly hasn’t helped. Their asset purchases and low/negative interest rates served mainly to drive up asset prices… to the benefit of asset owners instead of workers.
Economically, whether the next president is Trump or Clinton matters much less than most of us think. The White House can’t override economic reality no matter who sits in the Oval Office. At best, presidents can slow down or speed up trends that are already in motion.
Could we get another perfect storm? We should all hope for one. Without it, we’ll stay stuck in traffic, going nowhere fast.
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Article by Patrick Watson