What Trump can do—and can’t.
Trump says he’s a winner. To be a winning president, Trump needs to fix what investor Scott Grannis calls the Obama Gap. The gap is American growth that fell into the ditch. From 1966 to 2008 U.S. GDP averaged 3.1% a year in real growth. Since 2009 it’s been barely 2%.
Grannis notes how the U.S. has bounced back after every recession except the last one: “Never before has the U.S. economy posted such a weak recovery and such a long period of subpar growth.”
What went wrong? Grannis ticks off the reasons: weak business investment, low job growth, microscopic productivity gains and, despite record-setting profits, a strange, depressive risk aversion.
What’s been at fault? Writes Grannis: “Beginning in 2009, the economy has been burdened by (1) an unprecedented remaking of the entire health care industry (Obamacare), which in turn has impacted the lives and health care costs of nearly everyone; (2) sweeping new regulatory burdens on the financial industry (e.g., Dodd-frank); (3) a massive increase in government spending and transfer payments (the American Recovery & Reinvestment Act); (4) higher marginal tax rates on income, dividends and capital gains; and (5) a huge increase in the federal debt burden. You don’t have to have a political bias to believe that these changes could go a long way to explaining why the economy has been so weak during the Obama years.”
So weak, in fact, that about $3 trillion in economic activity that ought to have occurred during Obama’s eight years didn’t happen at all—as if it were stillborn. Three trillion dollars would have meant a lot of new jobs, bigger raises and higher hopes. But they never happened. Grannis says it would take eight years of 5% growth to get the U.S. back to its 3.1% trend line.
What Trump and the Republicans can—and must!—do is fix items 1–5. No, we won’t get 5% growth, but we can get a lot more than we have now.
Pedal to Metal—but don’t Meddle
Trump and the Republicans can set the table for higher growth. But they can’t direct the growth—and let’s hope they don’t try. Trump won’t have any impact at all on what KPMG calls the Great Rewrite.
“How we interact, how we buy and sell, how we make things, how we get from place to place” is all being rewritten, says KPMG. The Great Rewrite is what you get when you combine accelerating technology with Millennial wants and needs. It’s a global phenomenon, and it’s unstoppable. This won’t go down well with some of Trump’s older voters, who want to return to an America they once knew.
Who’s going to stop demographic change? The Millennials are the first age cohort to exceed the Baby Boomers in population. Millennials are different, and they will have their way, as Boomers had theirs. U.S. population is headed to 440 million people by midcentury. If you want to stop that growth, then agree to give up your Social Security and Medicare. There aren’t going to be enough working people to pay for them.
Global population will go from 7.3 billion to 9 billion, even as it becomes older, richer and more urban.
Then there’s technology. It continues to ride the Moore’s Law rate of improvement, becoming twice as good every two years or so. On a logarithmic scale you can see a nice straight line, going up and to the right. But on the human scale the change is exponential. We tell ourselves that change is a continual progression. But it has sudden impact: robots that teach autistic children, cars that drive themselves, drones that deliver IKEA furniture, human organs that pop out of a replicating machine, jet engines that tell you when they need maintenance, metals that are “grown” and never fail, live concerts featuring new songs by long- dead artists, such as Elvis, Michael Jackson and Prince, rendered in holograms to audiences that can’t tell the difference.
It’s all speculation, of course. In reality entrepreneurs will try stuff and try stuff again. They will be backed by hundreds of billions of dollars in risk capital. Markets will form and disappear, as will companies and professions. Sure, it’s speculative, but the distance between speculation and reality is fast closing.
This time the old guard sees the next wave coming. Perhaps because it’s so big and powerful. At the Original Equipment Suppliers Association conference in Detroit a few weeks ago, I saw leaders in the automotive and parts industry with their eyes wide open to outside change and to partnerships with entrepreneurs. That’s a new mind-set—and it’s good. Donald Trump should step out of the way.