The Resurge of the US EconomyOr did it?

Finding One’s Stride

• At some point in the mid-1990s the US economy finally found its stride again

• But some of that growth was an overoptimistic technology bubble

• And we hit another bubble with house in 2008

The early 2Ks

The “New Economy”

US Productivity Growth

• 1995 – 2000 was just above 2% per year

• 2000 - 2005 was just above 3% per year

Information Technology

• Makers

Investment

• Investment for the economy rose an average of 13% per year from 1995 to 1999

• Investment in high tech equipment (computers, telcomm, etc.) rose 20% over the same period

• This investment boom is what drove the economy through the second half of the 1990s

Can this Continue?• No!

• With the overall economy growing at 3% and one sector growing so much faster.

• Either the economy will surge or we had a bubble. It was a bubble– In the middle of 2000, the growth rate of

investment dropped from 15% in the first half of the year to 0% in the second half

Recession of 2001

Info Tech after the 2001 Recession• Although there was a bubble, there were

merits to the internet and technology

• Everything was in place to utilize this new technology

• Unfortunately, not everyone had the skills to succeed. The 2Ks are a period of strong growth and money to be earned, but only if you have the skills

Info Tech after the 2001 Recession

• The first stage before the recession was the development of the technology

• The stage age the recession was the use of technology

Example

• hospital store room

Example

• Imagine if you could translate that fully integrated system into an entire company

• It might be called Wal-Mart or Amazon

–

Service Industry

It took some time

Should we be surprised?

•

Should we be surprised?

Computers Started Back in the 50s

Takes Time

• While it is important to note that all of these inventions take time.

• Companies needed to change to use all of these new inventions.

• The US is really good at adapting. This is our strength.

What about the Other Macro #s

• Productivity is the most important story, but• Inflation has stayed low– 2-3%– The Fed is serious about keeping inflation low

• Volatility in the housing market• The key recession is from 2008 and we are stilling

feeling its impact. • Except for our current issues, unemployment was

low throughout the 90s and 2Ks

Housing Market Crash

• Rapid run-up in oil prices• Government encouraging subprime lending in

the housing market• Crash in mortgage-back securities

Unemployment

Stronger Attachment

Accumulated Debt/GDP

• Numerator—how fast the debt is growing• Denominator—how fast the economy is

growing• Ratio—which one is expanding faster

History of Debt/GDP Ratio

• 80s—Growth was still slow and congress was starting to spend. Ratio increased from about 40% to 60% by the mid 90s

• Late 90s—Strong growth especially in the tech market and increased taxes on all of the tech stocks traded. Deficits increased, but at a slower rate. Ratio decreased

• 2K—Bush tax cuts reduced money taken in and War caused the ratio to increase, but it is still in the 60% range

• Obama years—Large increases in federal spending to fight the Great Recession has pushed this above 70%

History of the Debt/GDP Ratio

• With the Great Recession causing high unemployment and lower tax revenues, the renewal of the Bush Tax cuts, and massive increases in spending, if we include external debt, we crossed 100% in Obama’s presidency.

• Am I concerned about right now? Yes and No• My worry is healthcare cost when the boomers

retire. About 2020

Challenges to Our Economy

• Poverty• Inequality• Pensions• Education Systems• Healthcare Systems• Transportation• Energy• Environment• Migration

What Will Be the Engineof Future Economic Growth?

• More Workers• Better Quality Workers• Increases in Physical Capital• Increases in Technology• More Resources

More Workers?

• This is a demographic question?– Migration will play a big part in this, but currently

the predictions are zero growth between now and 2030

– We have some migration, slower growth, a baby bust, compared to the current workforces, and a large number of boomers set to retire

– This is new for our economy

How Can We Have Growth

• The same number of workers will need to produce more– Investment in physical capital• The US has not been a high investment country in

recent decades. We spend spend spend. Many boomers took 2nd mortgages so they could spend• Helped China grow, but not us. China has helped us

save because we would not do it ourselves• Will this change? No boomers will retire and will not be

able to save. Not likely the government will save. (Social Security and Medicare)

How Can We Have Growth

• The same number of workers will need to produce more– Investment in physical capital– Investment in human capital

How Can We Have More Growth

• The same number of workers will need to produce more– Investment in physical capital– Investment in human capital– Technology

Techno—Reasons For Concern

Techno-Reasons to Be Pleased

• We are willing to adapt and change

What is our Future?

• We are more integrated• We have great foreign trade—both imports and

exports• We have the ability to split up production. No need

to make cars only in Michigan. We can make them around the world.

• We need to be open and flexible. Our people and foreigners, our companies and foreign companies. The government needs to aid this process, not obstruct.

Should we shut out the rest of the world since we are big?

China