In his latest Bloomberg View columns, economist Gary Shilling takes issue with peers like Carmen Reinhart, Kenneth Rogoff, Larry Summers, and Robert Gordon that have warned about slowing U.S. economic and income growth.
“When an economic phenomenon lasts long enough, economists and academics like to develop theories to show that it will last forever,” Shilling writes in a two-part series titled ‘Slow-Growth Forecasts Are Wrong’ and ‘The Boom Is Coming And Sooner Than You Think.’
“They are often mistaken.”
Shilling share a great quote that was wildly wrong: “In his 1843 report to Congress, Patent Office Commissioner Henry Ellsworth said: ‘The advancement of the arts, from year to year, taxes our credulity and seems to presage the arrival of that period when human ingenuity must end.'”
He argues that despite federal government debt and deficits acting as a major drag on growth, “there is a strong possibility that government debt relative to gross domestic product will fall appreciably, as it did after World War II.”
Shilling disagrees with the “Reinhart-Rogoff argument — that high government debt depresses GDP — my view is that government debt doesn’t depress economic growth, as they contend, but the other way around.”
He also takes issue with Northwestern University economics professor, Robert Gordon’s view that everything worth inventing has already been invented. From Shilling:
“I believe much of today’s new technology — the Internet, biotechnology, semiconductors, wireless devices, robotics and 3-D printers — is in its infancy. Collectively, they have the potential to rival the rapid growth and productivity-generating effect of the American industrial revolution and railroads in the late 1800s. Mass-produced autos and the electrification of factories and homes, which led to electric appliances and radio in the 1920s, offer yet more examples. Today, only a third of the world’s population is connected to the Internet but 90 per cent live within range of a cellular network.
“Sure, productivity (output per hour worked) grew by only 1.5 per cent from 2009 to 2012, but that’s normal after a severe recession. I expect it to return to a 2.5 per cent annual growth rate — or more — after deleveraging is completed in another four years or so. Even in the 1930s, productivity averaged 2.4 per cent a year, higher than in the Roaring ’20s. In the 1930s, much of the new technology from the 1920s — electrification and mass production — was adopted despite the Great Depression.
“Rapid productivity growth offsets slower labour force advances. The decline in the labour-force participation rate is likely to slow in coming years once normal economic growth resumes. The rate has fallen as baby boomers retire and discouraged workers drop out of the labour market or stay in college.”
Shilling expects that once private sector deleveraging is finished, real GDP growth will return to about 3.5% or more. He also thinks “the slow-growth-forever crowd will need to find a new theory.”
Gary Shilling of course is known to be fairly bearish. His monthly Insight newsletter reminds us of the prevailing ‘risk on’ climate we see “despite the many warning signs related to economic growth and financial markets here and abroad.”
So these columns caught our attention.
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