Pessimistic Economic Forecasts Ignore a History of Dynamism
Pessimism is in the air. A rising number of economists seem to have resigned themselves to slower American economic growth. They cite both the slow recoveries from recent recessions and the failure of recent technologies to jumpstart productivity. Like Robert Gordon, they look back wistfully to the century from 1870 to 1970, when the “second industrial revolution” of mechanical and chemical advances drove real per capita growth at an annual rate of 2%. Even the more optimistic economists now expect growth at 1%.
This slowdown, combined with rising income inequality, has called capitalism into question. Critics seek stepped-up government intervention in the economy, with aggressive antitrust, redistribution of wealth, and heavy regulation. But this approach neglects a crucial factor in the glorious century of rapid growth.
Despite calls for nationalizing industries, weakening the currency, or radically expanding government power, 19th century Americans maintained a decentralized political economy balancing property rights with the right to compete. The result was an entrepreneurial dynamism that drove the powerhouse innovations of those decades. To recapture that growth, we need to trust in our entrepreneurial dynamism to address our main problems, with government as a supporter rather than leader.