JAN. 08, 2021
Source: University of Chicago
We have used ample space here in recent months extolling the increasingly promising technological and sociological developments that may finally be lifting the economy’s long-run potential growth rate. As the events in Washington this week laid bare, however, it should be underscored that there remain significant structural headwinds, as well.
The Nobel laureate Kenneth Arrow wrote in 1972 that “virtually every commercial transaction has within itself an element of trust…much of the economic backwardness in the world can be explained by the lack of mutual confidence.” Since then, several academic studies have confirmed a strong relationship between societal trust and economic progress. It is discouraging to note, then, that trust has been in decline in the U.S. for the better part of the last four decades, with just over 30 percent of respondents to recent surveys agreeing that “most people can be trusted”. This is well south of the levels in high trust societies such as Norway, Australia, Vietnam, and Switzerland and not terribly far removed from Russia, India, Iraq, and other countries that traditionally score poorly on measures of corruption perception (it should be noted that the U.S. is far from alone among developed nations on this front; Italy, Japan, and the U.K. all also show relatively low levels of trust). This dynamic has, of course, been full display over the past year, as a lack of trust in public officials and institutions has very likely deepened the impact of the pandemic (note here that mistrust is a headwind whether is it warranted or unwarranted).
So how to make sense more broadly of a backdrop in which some of the structural factors on both the upside and the downside are intensifying? Perhaps it is best to think of some of the emerging tailwinds as super-cyclical – rather than structural – along the lines of the rise of the internet and associated technologies in the 1990s; advances in artificial intelligence, biotechnology, clean energy, etc. will have profound and lasting impacts on society, but their ongoing influence on the trend pace of economic growth could well diminish after a cycle or two (consider that productivity growth entered into a long-term decline less than a decade after the internet was widely adopted in the mid-90s). This can still be a very long time, of course, but the headwinds associated with a rising debt burden, aging demographics, political tribalism, and growing mistrust threaten to be more perpetual in nature until the underlying conditions themselves are reversed. There are still many, many reasons to be bullish about the decade ahead, but the gains to come could well be accompanied by an undercurrent of an even longer-term structural downshift.
What country has promoted itself with the slogan “The 45-Minute Country” in reference to the very short distances between its major tourist attractions?
Driven by the destruction of its industrial base during World War II, what country experienced the worst case of hyperinflation in recorded history, with prices doubling roughly once every 15 hours?