Five Ways to Reboot the U.S. Economy
The U.S. economy is stuck in the Grand Malaise. GDP growth and employment are good but not great, and every positive seems to come with a caveat. Unemployment is low, but there has been a large decline in labor-force participation. GDP is projected to grow quickly in 2014, but turned in a negative performance for the first quarter. The question, then, is how does the United States remove these caveats from the economic picture?
1. Build Better Bridges:
The American Society of Civil Engineers estimates that, without any change in policy, the sorry state of U.S. infrastructure will cost the U.S. economy 3.5 million jobs and $3.1 trillion in GDP between 2012 and 2020—obscene figures. Plans to spend $1.6 trillion on infrastructure through 2020 will fall more than a trillion short of what is needed, and $2 trillion short of the standard to move the current D+ grade to a B-.
Although bridges and roads are, by dollar value, the most costly, infrastructure investment is needed across everything from water systems to airports. Roads would likely have the largest economic impact in the near term, but water will have increasing importance. Congestion alone costs $101 billion per year in time lost to traffic and fuel. There are also infrastructure requirements to support the U.S. production of shale oil and gas, which is, and will continue to be, a boost to U.S. GDP.
Infrastructure is typically a government responsibility, but there are other ways to finance the necessary improvements. Promoting more extensive use of Public-Private Partnerships (3P) for funding is a starting point, and there are some signs this is beginning to happen. One example is the passage of the Transportation Infrastructure Finance and Innovation Act which provides Federal credit assistance to 3Ps. Another sign is the formation of the Panel on Public-Private Partnership by the U.S. House of Representatives. Most states have laws outlining 3Ps, but there is a lack of similarity and overlap. The disparity in laws and regulations can cause confusion among potential private sector participants. To fund the needed roads and water works, the United States needs to clarify and encourage private involvement.
2. Tackle the Trade Treaties:
The United States needs to place more emphasis on passing the trade treaties it is already negotiating. The Trans-Atlantic Trade and Investment Partnership (TTIP), currently being negotiated with the European Union, and the Trans-Pacific Partnership (TPP), in Asia and South America, are the largest trade agreements in history. Separately, the TTIP and the TPP will reshape global trade. Together, they could bring massive economic gains to the United States as nontariff barriers—regulations and other nonexplicit trade frictions—are broken down.
The scale of these treaties is enormous. The TTIP represents around 50 percent of world GDP and the TPP around 40 percent. To the point of their scale, the Bertelsmann Foundation estimates the TTIP could create more than one million jobs and increase real incomes by 13 percent in the next decade.
The benefits of the TPP are less immediate. Because the United States makes up about 60 percent of the TPP GDP and already has agreements in place with most of the larger participants, there is little to gain in the near term (this is the “Too Big To Benefit” rule). In the longer run, the United States is positioning to be at the table for larger regional agreements that could include China. China joining trade negotiations changes the calculus of returns to the United States. The United States has never had a trade agreement with Japan, and breaking through some of the more closely held industry barriers could prove fruitful for both sides.
Asia is growing much more quickly than the West, and the United States needs to maintain relevance in the region. The TTIP keeps an eye to the West, but the TPP propels the United States’ necessary pivot East.
3. Entrepreneurial Employment:
A recent Brookings Institute paper suggested that the U.S. economy, defined in terms of entrepreneurship, has been in a steady state of decline. But defining entrepreneurship by a lower firm entry rate (the number of firms less than a year old as a percent of all firms), as the authors do, is misleading for the simple reason that the inventory of existing businesses grows. If there are ten businesses that exist in the economy and ten more are birthed, the firm entry rate would be 100 percent. If there had been 20 existing businesses in the economy, the entry rate would be 50 percent. However, the latter economy would be just as entrepreneurial as the other. This means for the entry rate to hold steady, the number of business births must steadily increase, and it becomes increasingly difficult to maintain the rate.