Here is an interesting bit from a recent article by James Fallows interviewing Nouriel Roubini – Dr. Doom Has Some Good News:
“The question is, can the U.S. grow in a non-bubble way?” He asked the question rhetorically, so I turned it back on him. Can it?
“I think we have to …” He paused. “You know, the potential for our future growth is going to be lower, because of the excesses we’ve had. Sustainable growth may mean investing slowly in infrastructures for the future, and rebuilding our human capital. Renewable resources. Maybe nanotechnology? We don’t know what it’s going to be. There are parts of the economy we can expect to lead to a more sustainable and less bubble-like growth. But it’s going to be a challenge to find a new growth model. It’s not going to be simple.” I took this not as pessimism but as realism. (emphasis added).
I have to somewhat disagree. The new growth model has been in front of us for some time — we have just chosen to ignore it and take the easier path of asset bubbles. That growth model is based on innovation and fueled by intangibles.
As I have noted often (including yesterday), the new model is slowly taking hold. It is a model where there is less consumption of mass produced items and more of customized solutions — which mistakenly show up in our economic statistics as “services” even though they are based on goods. It is a model where American production of goods (which we currently label “manufacturing”) and services are revitalized using knowledge and intangibles — where our trade accounts return to a sane balance.
Seen from a macroeconomic point of view — where all consumption is one big aggregate — Roubini’s question makes some sense. Seen from a microeconomic view, however, the answers are more discernable in the structural transformation.
But let us be clear. We are talking a major transformation. The new growth model is not a return to the economy of the 1950’s or even the 1980’s. It can’t be. The days when a young person could finish high school and get a good paying job on the assembly line with almost no skills is gone forever (as a recent New York Times story highlighted). The days when all a business had to worry about was how to increase efficiency are over.
The fact of the transformation is clear. It will happen. Whether the US takes advantage of the transformation to ensure economic prosperity is another matter. The policies we put in place will determine the outcome. To the extent that we stick with the policies of the industrial age, we will not prosper. To the extent that we miss read the transformation using an industrial age mindset (i.e. its all “services”), we will not prosper.
Thus, our first task it to change the mindset – and understand the transformation. By doing so, we will create the new growth model Roubini and other macroeconomists are searching for.