Research

Podcast: America's six unstoppable trends

In the midst of one of the worst financial crises the country has seen in decades, one man is optimistic about America's future. Barry Asmus is senior economist at the National Center for Policy Analysis, a non-profit, non-partisan public policy research organization. Asmus is scheduled to be the opening speaker for the Compete Through Service Symposium at the W. P. Carey School of Business. Here he talks about America's economic future and its six unstoppable trends.

2008-11-05

In the midst of one of the worst financial crises the country has seen in decades, one man is optimistic about America's future. Barry Asmus is senior economist at the National Center for Policy Analysis, a non-profit, non-partisan public policy research organization. Asmus is scheduled to be the opening speaker for the Compete Through Service Symposium at the W. P. Carey School of Business. Here he talks about America's economic future and its six unstoppable trends.

Transcript:

Knowledge: Can you outline for me what those six unstoppable trends are?

Barry Asmus: The big perspective is that growth is very difficult from the beginning of time. Until the year 1500 AD, there was no economic growth, thousands and thousands and thousands of years and there was no difference of standard of living between one generation and the next and the next and the next. It finally started at the rise of Western Europe in 15th, 16th, 17th century for all kinds of good reasons, the Magna Carta of 1215, printing press, the rise of science, the rise of physics, the rise of chemistry, the rise of biology, the rise of science, the rise in Christianity, savings, investment, private property.

So, I am going to set a stage for these six pillars by giving us a little background that there was no economic growth; and then all of a sudden we go a few centuries that is, and then of course when the rise of the United States came in the 19th and 20th century, it was just phenomenal. I mean, they were not only getting one-half a percent of rate of growth in a generation, but we gave half-percent of growth per year. And it was unbelievable.

This has translated to the rest of the world now, the rise of the rest of the world as we go into the 21st century: India, China, Latin America, Easter Europe, many other countries, the rise of the rest. And a good reason that this is occurring is because the world is coming to understand markets and privatization and the importance of lower taxation and lower tariffs and free trade. And then, the technological evolution of the Internet.

The printing press made us all readers while radio made us all listeners, but I will tell you what, the Internet makes us all producers. And because it does, because in an Internet world, the planet is the relevant market, it gives a backdrop of economic growth that the world has never never seen before. In fact 2003 to 2007, world economic growth was 5 percent a year. And you just contrast that with anything that has happened over thousands of years, we have not seen anything like that.

And I think, this is mainly because productivity of the labor forces and the planet becomes a relevant market and we have globalized email system, we have globalized buy and sell vis a vis websites, etc. So, what a period! What a period! So, that will be the setting to say, OK now in that setting, what are going to be these trends that America has led and will continue to lead the way.

And we will just take them one by one, we will look at population growth and demographics, not the most important variable for sure, but we will start off with that one because it is important to understand that population growth is quite wonderful. And in contrast to Western Europe, which is in a population decline and an population implosion as is Japan with the same set of events, as is Russia losing 2,000 people a day, the United States is in a wonderful position of demographics and population growth.

We have got 75 million people in the high productive, high consumption, high investment stages of their lives, so we will develop that a little bit in contrast that again with around the world of what that one looks like. Then, we will look at taxes — taxes matter, taxes matter. I am going to make a strong case for how important taxes are and once again contrasting American taxes with a good part of the world.

Except for the corporate tax rate, ours are certainly reasonable and hopefully, we will come to our senses and lower our corporate tax rates that will match what is kind of going on in kind of the supply side, a tax revolution around the world. So, we will spend some time talking about taxes and what a pillar it is. We are going to spend a lot of time talking about productivity because productivity is the name of the game. It is not about jobs, it is about productivity.

If economic life was about jobs, we can get rid of all factors, all combines, and issue of size and issue of tablespoons to build roads with. No, no, I don't think so, it is not about jobs, it is about productivity and America has absolutely unequivocally led the way in entrepreneur or capitalism and productivity. The productivity of our labor force has doubled in the last 15 years, every year we have had 3, 4 percent, contrast it with 1, 1.5 percent from 1900 to 1995. So, productivity is a big, big deal.

It has been one of America's aces in the hole and there is no reason to believe that this can't continue, after all we have eight of the ten best universities in the world, we have 40 of the 50 best universities in the world and even our second tier universities after the Harvards, the Yales, the UCAL Berkeleys and the Stanfords and the University of Chicago, we have even got a community college system that truly would be the envy of the world.

So, our students, oftentimes, aren't quite ready to match international students at age 18, but there is no comparison at age 28. I mean, they click it into gear, even junior colleges are some of the better colleges and universities. So, we have got such a leg up when it comes to entrepreneur or capitalism. It is incredible. I mean, the fact is the United States, this very minute, produces one-third of the world's wealth with less than 5 percent of the world's population, 80 percent of the world's Nobel laureates.

In America, with less than 5 percent of the population, 90 of the 100 most important inventions of the 20th century have come from America. So, productivity is a huge, huge pillar. Globalization is another one because it is win-win — win-win mutual gains from volunteer exchange. And the world is just anxious to get back on track again. Like I said, we had five years of 5 percent world growth, 2003 through 2007. We are off track now, no question about it, these are tough times, no question about it.

We are in recession as is a good part of the rest of the world because when America gets a cold, the rest of the world gets the flu and so that's all unfortunate, but you know what, business contractions happen, happens all the time. It happens in life. If I were to say that I will never get sick again in my life, I want to say I don't think so. And so we are in one of those periods of time, America will regain its footing, the markets will regain their confidence and our credit markets will once again loan out because in fact we have got trillions of dollars on the sidelines just waiting to come in when conditions stabilize.

When will that be? We are going to try to share that when we have this conference and no one knows, of course, but we got into a toxic situation when home prices began to fall and we will get out of this toxic situation when home prices stabilize and began to rise. When will that be? Well, we need more of a fall before that happens. Home prices have already fallen 20, 30 percent and they probably have to do about that much again in the year 2009 to get us back to a norm of housing prices growing at 2 to 3 percent a year instead of doubling in six years as they did from 2000 through 2006, a doubling of home prices.

That was a bubble. That bubble was coming simultaneously with a credit bubble, with a commodity bubble, oil prices going to $140 a barrel, a bushel of corn going to $8.25 a bushel, etc. And so, it was a confluence of a set of events, very difficult, no one denies it. Everybody is paying a huge price right now but my message is: we will regain footing, home prices will finally stabilize and begin to rise, toxic assets begin to come off of everybody's ledgers and we again move into the next cycle.

As we look at the 21st century, it is going to be the rise of a risk, that is the rise of other countries like India, like China, Asia, Latin America, etc. The one thing that is absolutely necessary and imperative to the rise of the rest and including our own needs is energy. And countries throughout the world will need energy and the United States is just absolutely going to have to play its part in that. And the fact is the United States has more fossil fuel energy than almost any place you can name.

We have 200 years of shale if we would mine it. We have 100 years of our coal if we would liquefy it. We have got enormous amounts of energy in the Gulf of Mexico. We have got a couple of Saudi Arabias up there in Alaska, in Anwar. So, it becomes absolutely imperative that of course we can develop some wind, of course we can look at solar. But, as you go to those intermittent energy sources, it takes decades to make that kind of a transition in the best of circumstances.

In the meantime, we have got to drill our own oil in Alaska in the outer continental shelf. We have got 87 billion barrels of oil in the outer continental shelf we have got to develop. The rest of the world will do the same and you will see that. There will be enormous amounts of energy coming forth. So, that becomes a pillar. I mean energy equals growth, growth equals energy and it is very, very difficult to make life happen without it. And so, that is a huge pillar.

Then, of course, France goes from 20 percent energy independent to being 50 percent energy independent through its development of nuclear power, built 57 nuclear reactors in the last 30 years. We have built zero nuclear reactors. And here is an energy source. We all know we are going to eventually go to an all plug-in automobile society. That all cars in 20 years will be plug-ins, they'll be electric, that is a given.

But, we have to get from here to there and even when we get to there, we are still talking about electricity. Where do we get the electricity? Nuclear makes so much sense. Countries throughout the world have used it safely. Our nuclear submarines and so on and we have been using it safely for 30, 40 years of fleets. It is time we really, really address the whole idea of nuclear energy with zero carbon imprint on the world as we do that.

So, one thing to talk about energy, one more thing on energy is biofuels, it is madness, biofuel madness. To use 130 million tons of corn to produce gasoline. This is madness at its worse. It takes 10,000 gallons of water to produce five gallons of biofuel. It takes 10,000 gallons of water to produce two gallons of biodiesel. It makes no sense. You use the corn for cows and pigs and humans and not for fuel, nothing could be a nuttier thing to do.

We are going to talk about that a little bit. The very anchor of our economy is we have absolutely got to figure out how to handle one-sixth of the U.S. economy, i.e., in healthcare, and we can't go on the way we are going on with — it is like we are shopping with someone else's credit card.

And so, we must move to have savings accounts, a high deductible catastrophic to take care of the large expenses and then have savings accounts to take care of the small ones. And the minute we begin to do that, we competivize the health care system and you haven't seen nothing yet when you begin to see that take place. I think that can all be in our future and that is another strong pillar that we will be talking about.

Knowledge: You sound very optimistic, especially when there has been this slew of books and papers and scholars and pundits, all saying, well the 20th century was the American century, the 21st century will be the Chinese century and United States will become more and more irrelevant. You obviously don't think that's the case?

Asmus: I don't think that's the case, but I would say this: what we will see in the 21st century is we will see enormous growth from China. Why? Because it is turning to the market. Why? Because it is turning to privatization. Why? Because it is giving up on the idea of communism and public ownership of the means of production, etc. India will do the same thing. Once again, why? Because finally starting in 1991, India made a big turn again towards capitalism, towards markets, to lower tariffs, to free trade, to stabilizing their currency, lowering taxes.

So, countries are all moving towards being more market oriented and that is going to be so helpful because after all in the final analysis, you know private property really is the crux or freedom and freedom is the mainspring of prosperity. I mean John Locke told us that in the 17th century, and it is true today as it was then. I mean, the world is coming to its senses. So, I would say this: of course the United States will not sit at a pinnacle peak and dominate everything as we have.

Oh, my gosh! As we ended the 20th century, we were not only the premier economic power, the premier pinnacle power, the premier everything. I mean we just sat all by ourselves and there is just no doubt about it. China is not going to ride bicycles in the 21st century. Again, 1.1 billion people in India are not going to ride bicycles. So, you are going to see enormous miracles economically in many, many countries of the world.

Having said all of that, it is no easy task to move to a very strong technological economy and China will try and will make great gains in the 21st century, India will do the same and other countries, but that is hardly to think that America is going to be left in the dust. America will probably end the 21st century being among a half a dozen of the very top nations of the world if not the top. If not … I don't get overly bothered by that.

In fact, I am more bothered by … we sit as the only pinnacle of power in the world. That's a much more dangerous position because everybody shoots at you, everybody takes you on. How much more pleasant it will be when we begin to see some prosperity to reign throughout the world and we will. We ended the 20th century with most people of the world poor, about three billion people on the planet making $2 a day, half the world's population have never used a telephone.

We will end the 21 century with most people in prosperity. And that is nothing but good news for America, it is win-win mutual gains from volunteer exchange. I have to say that when Taiwan and South Korea were third world countries with no economic growth, who cared. But, when Taiwan and South Korea began to grow economically, they rank as our #7 agriculture export countries.

Win-win mutual gains from voluntary exchange; or saying that another way, when they do well, we do well; and when we do well, they will do even better. And that really, really will be the case as we move into the 21st century. So, it won't be so much of who is on top or not on bottom, we are going to see a lot of countries begin to prosper.

And I think, if that scenario is true, the beautiful thing about it is when nations begin to trade fabrics and exchange economics, they are much less likely to go into war. When you trade fabrics, you trade ideas, exchange ideas. When you exchange ideas, you exchange friendships, etc. So, yes, I am optimistic, but I am not only optimistic about the United States, I am optimistic about what is going to happen in the 21st century as we see the rise of the rest and that is going to be fun to watch.

Knowledge: How do you think the global response to the economic crisis points to the United States still being a leader?

Asmus: They really don't have any choice at this moment, a choice in a sense that where does China send 50,000 students a year and have been doing it for 30 years. The answer: to the United States. Where are the best hired individuals going? Answer: the United States. Are they prepared to do that? Are you kidding me that China has got half a century to work just on infrastructure and roads and hospitals and all the rest. So, they have an enormous way to go.

I am not criticizing at all, or how far they have come so far. And then, you find out that the minute America stops buying, these other countries fold up like a tent. Now, that will not always be the case for sure, but at the moment, in the next 10 or 20 years, America will absolutely play the pivotal position of this world economy. It might not be exactly in that position in the year 2050, but each of these countries have their own problems.

Just at the time that China is going to be ready to get rich, China is going to be old. China has had a one-child-per-family policy and here is the problem — you have to have 2.1 children per woman to maintain your population. They are not going to do it and demographers are predicting close to catastrophe, but interestingly they were saying some of the same thing about Western Europe as Western Europe population is in a terrible population implosion.

Many demographers are saying they have not seen anything like this since the Black Plague of the 14th century. Russia losing 2,000 people per day. So, every country has their own set of problems. It is not all going to be gardens like. Once again, I get back to what we started with in this discussion. We went thousands and thousands and thousands of years of no economic growth, no perceptible economic growth between generation after generation and you go out after thousands of years, well let me tell you, I wish creating economic prosperity was easy. It is not.

The world is coming to realize though that the way to do that is with rule of law, the way to do that is with protected property rights, the way to do that is with titles, deeds, articles of incorporation, so that when people do invent, they have something that is of value and it is not stolen from them, or just maybe another way of saying that is when was the last time that you washed a rental car. Well, the answer is you haven't washed a rental car.

Why? It is not yours. Everybody's business is nobody's business. So, the world is going to come to understand what England began to learn in 1215 in the Magna Carta, rule of law, United States began to learn because of John Locke and his writings at Oxford University in the 17th century. And the whole world is coming to learn, because they have got to watch the United States of what rule of law, or participated democracy, or protected property rights, etc., etc., look like.

And it is exciting for me to travel the world and spend time in Eastern Europe and many other places of the world and see how much they want to mimic that model, and they are. I mean, China began to privatize under Deng Xiaoping. It is flat out simple. I mean China would never have accomplished what it has in the last 20 years without coming to its senses and saying no, the premier is not going to own all the land, no we are not going to play the ownership game the way we have in the past.

No, we have got to start giving protected property rights and leases on the land. Deng Xiaoping in 1978 began to do that — gave 30 year leases on land. The Chinese even have a proverb and it says, "Give a 100-year lease on a desert and people will turn it into a garden, but give a one-year lease on a garden and they will turn it into a desert." And so, the Chinese have figured this out, the world is figuring it out.

And it is just a magnificent time to live, not only to think of the technological or the Internet making everybody a producer and a free mailing system, free buy and sell system, and a free anything you want. I mean, computers that can teach reading, writing and arithmetic 24 hours a day, learning how to fly a jet plane, come on, a little minor nip, we will learn how to do that blah, blah.

So, the technology, obviously that is a given, but what has not been a given is that the world has not got it squared away as to how to handle property as John Locke so beautifully said in the 17th century and in the last two decades of the 20th century, the Chinese figured it out. At the last decade of the 20th century, the Indians under Prime Minister Singh figured it out.

Private property is the crux of freedom, freedom is the mainspring of economic prosperity. You have to have protected property rights and titles, deeds, articles of incorporations, incentives matter, blah, blah, blah. So, it is terribly exciting and I am not the least worried what position that America is or is not going to be in. I think, I do understand that they will almost have to play a pivotal position for another 10 or 20 or 30 years.

Knowledge: What has kept our country young has been immigration …

Asmus: Indeed, indeed.

Knowledge: … How long are we going to remain this magnet to new immigrants?

Asmus: Well, I know. I think, you make a very good point. But now, it is interesting to note, though there is no doubt that immigration has been so helpful in our country in the last 10 or 20 years, no doubt. Most economists, nine out of 10 economists would call it a win-win. They would say that the benefits exceed the cost. Yes, there are some significant costs, but by and large there are tremendous benefits. But, here is really kind of the good news.

The fact is non-Hispanic women in the United States had more babies last year than in the last 25 years. So, you know why? Because there is hope. America has hope, you have children. My own kids have three children. My wife and I only had two kids. My kids have three kids. Why? Because there is hope. America is a magnificent place to raise children to create a life. But, the question is, is Russia? The question is, is Japan with no growth in the last 20 years, no economic growth?

Japan's gross domestic product is exactly the same today as it was in 1990, 18 years ago. No, the Japanese are not having babies and of course China does not by public policy. They only allow one baby and they make sure the rest are all put down before they are delivered. So, it is a very, very interesting question on immigration.

We will absolutely have to address it. And I think there are some … and if we talk about that at this conference, I am happy to and I am glad you brought it out because there is no question it has helped keep our population young. And demographically, we are going to be a much, much younger nation than is either Western Europe or Japan or many places in the world.

Economics