Thoughts from the Rocky Mountain Economic SummitJuly 15, 2014
[Last] week, we had the pleasure of attending the Rocky Mountain Economic Summit sponsored by the Global Interdependence Center, the Bronze Buffalo Club and the Huntsman School of Business at Utah State University. For three days, economists, business leaders, three Federal Reserve Bank Presidents and former government officials held in-depth discussions and stimulating debates on many key issues affecting the global economy. However, none hit home as sharply as the interrelationship between slowing productivity growth, income inequality, education, long run budget issues, and entrepreneurship. Clearly that is a mouthful, but we see a strong central theme here about how we can get the US and global economy going again. It would take far too long a paper to explore all these issues in depth, but with our mind swirling, we will take this opportunity to tie together our own views on how we got here and how we might recover.
At the heart of the debate is Larry Summers’ contention that the US has slipped into a period of secular stagnation due to both weak labor force growth (as a result of demographics) and low productivity – due to underinvestment and insufficient demand. One particularly disruptive comment is Summers’ view that capital may no longer be a compliment to labor, but rather a substitute – resulting in an increasingly underutilized workforce and growing income inequality. Schumpeterian creative destruction has always resulted in new machines replacing labor employed in old industries, but traditionally economists have argued that this freed labor to be put to work in new higher productivity jobs – and at higher wages as they shared in the benefit. For us, the central issue is whether that remains true. When farm workers were displaced by tractors in the industrial revolution, they went to town with strong physical and mechanical skills that were well suited for the repetitive tasks of mass production. When after WWII, rapid technological advance again freed labor; it allowed returning GIs and newly graduated high schoolers to spend more time in college gaining the skills needed to efficiently employ these new machines. Today, technology continues to free labor, but the workers who are displaced often have lack the skills to adapt to working with the new more advanced machinery. This is where education has become the bottleneck, and, in our view, the key questions of the future lie.
One very strong response to underemployment and low interest rates has been a wave of debt financed education – exactly the result the invisible hand would suggest. Unfortunately, at the end of that education, jobs have remained scarce – because the skills gained have not always been the skills needed in the new high technology world. The obvious answer is for the schools to train new and existing workers in a different way – and it was at this conference that we first began to believe that process was further advanced than we had previously felt. Everyone seems to agree that the days of lifetime employment are over, and that one should now vie to gain skills that will be appropriate for a more flexible work life. The best and the brightest have even figured out that they may need to generate their own jobs and are taking the entrepreneurial leap. It is here that supply does not equal demand.
We are most intrigued by the generation skipping nature of many of the ideas we have heard recently. Just as grandparents will often fund the education of their offspring’s’ offspring, it is often the entrepreneurs of the baby boom we see investing in new ideas that will largely benefit the Millennials. We thank Neil Howe, co-author of The Fourth Turning and Generations, for opening our eyes to the fact that the retirement programs that plague us today were all created to reward the hero generation that won WWII. Born between 1900 and 1920, they were raised under new child labor laws that provided government education, but were too young to go to WWI. Their first job was likely during the Great Depression with the CCA or WPA. They fought the war, and then returned home to the GI Bill, which financed education, mortgages and business start-ups. When they began to age in the 1960s, social security was expanded, and in the 1970s, as they became retired and infirmed, Medicare, Medicaid, SSI and Food Stamps provided aid. With a swelling population due to the Baby Boom and immigration, funding was never seen as a problem – until Greenspan was called on for the first fix in 1981. Now, population growth, immigration and generational dynamics have changed. The reform of education over the next decade may well hold the key to whether the Baby Boom enjoys its retirement, or is faced with the same problems that have plagued the Industrial Midwest as pensions are adjusted. Every initiative needs its carrot and its stick. Detroit is the big stick; we hope that a wave of successes in the training of entrepreneurs will be that carrot that leads to future salad days.