While investors have breathed a sigh of relief after the sharp equity rally to start the year, there’s an unease about where the next source of American secular growth will come from.
It’s unrealistic to expect the ‘FANG’ technology stocks to lead the economy forever.
A few trends point instead to government as the big driver of economic growth in the 2020s.
The growth model of the 2010s has been unusual because of the headwinds from the financial crisis.
The housing market, rather than being a growth driver for the US economy as it has been in the past, showed only tepid improvement as it crawled its way back to normal.
Public-sector employment, which tends to grow along with the economy at large, has been constrained both by budget realities at the state and local level and by political forces at the federal level, and will end up showing next to no net gain in employment this decade for the first time since government records began.
Instead of broad employment growth, the US has given the keys to Silicon Valley and hoped for the best.
In some cases, that’s meant greater convenience in the form of on-demand services and a vision of the future in the form of electric vehicles.
In other cases it’s meant a hyper-profitable new form of an old service, like mobile advertisements.
But it’s also meant a lot of experimentation with mixed results and unclear staying power — think of the “daily deals” craze epitomised by Groupon and LivingSocial in the early part of the decade, or $399 juicers from Juicero, which was funded by $120 million in venture capital.
There hasn’t been much top-down direction from the state when it comes to the economy this decade, but there are good reasons to think that’s going to change.
The first is greater awareness that the tech sector’s growth this decade has led to some behaviours that need to be reined in, whether it be disingenuous political ads on Facebook or the spread of misinformation on social media more generally.
The second is the political cycle turning from Republicans back to Democrats, whose agenda is likely to favour more government involvement in the economy than we currently have.
And the third is two catalysts that could drive fear and a sense of urgency for government action.
The first is climate change.
Americans’ concern over climate change has increased to record levels, at the same time that the new class of congressional Democrats has shown the willingness to speak about it more boldly than their predecessors have.
It would not be hard to imagine a Democratic presidential nominee, whether in 2020 or 2024, setting a goal for significant action on climate change by the end of the 2020s, the way President John F. Kennedy did for going to the moon in the 1960s.
It’s hard to know what kind of price tag could accompany such plans, but remember that even something ultimately inconsequential like the Y2K bug led to hundreds of billions of dollars in spending worldwide.
The second catalyst to watch is the tension between the US and China on technological innovation and progress.
At the same time that the US appears to be more cautious when it comes to the excesses of the tech industry, China, in seeking to find a new growth model as its working-age population shrinks, is racing ahead with experimentation.
Should the US feel that China’s progress threatens America’s national security or American dominance in the global economy, Washington may decide to take on China in a technological arms race.
Expect the government to have more say in the tech race than Silicon Valley and venture capitalists do.
National security means we can’t afford to have engineers wasting their time on $400 juicers or direct-to-consumer underwear start-ups.
Rarely do growth models persist from one decade to the next.
Few would have foreseen in the mid-2000s while the housing and credit markets were roaring that the following decade would be driven by Silicon Valley.
It may be similarly hard to believe the next decade’s economy could be more top-down, government-driven than we’ve seen in decades, but the signs are all around us already.