Should I stay or should I grow?
Economic growth is a powerful force in human history. Its effects reverberate from individual households and firms to regional, national and global levels. Growth creates jobs, generates tax revenue and, over time, improves public health and raises living standards.
Historically, the United States has been the benchmark for strong growth: America led the way with the development and use of many key innovations and, as a result, enjoyed a gradually upward-tracking economy. Consider this: Since 1774, U.S. inflation-adjusted GDP has doubled over 12 times. Throughout the 20th century, average household incomes increased, and overall quality of life improved. However, growth rates as the United States recovers from the Great Recession have been disappointing, with few signs of picking up.
So, the Federal Reserve Bank of Minneapolis is asking students, in its 29th annual essay contest: Can the U.S. economy still grow the way it once did?
Since 2009, when the Great Recession ended, the U.S. economy has grown at its slowest rate since World War II. Lawrence Summers, former Secretary of the Treasury, points to what he calls “secular stagnation” as the cause—in essence, an excess of saving (conversely, too little consumption), which “stagnates” the economy. This can be thought of as a demand-side drag on the economy. Economist Robert Gordon observes the same sluggishness, but argues that it is a result of six “headwinds,” which act as supply-side drags on the economy.
Growth on the horizon
However, other voices remain optimistic, finding flaws in the pessimists’ arguments. A main point of contention is the likelihood of another Industrial Revolution. Gordon argues that the productivity boost from inventions like electricity, internal combustion engines, running water and plumbing, chemicals, and communication and electronics will never come again. Others argue that we are only beginning to realize the possibilities of the internet and instant, global connectivity. Consider the so-called internet of things: everyday objects like appliances, thermostats, cars, bridges and more, imbedded with sensors to communicate with each other and with humans. Does this technology have the power to revolutionize commerce to the same extent as indoor toilets, internal combustion engines and electric lights?
Beyond our borders
There’s no denying that the United States is influenced by the movement and trends of the global economy. On the one hand, European financial turmoil, international conflict and weak growth from China (relative to historical numbers) all contribute to uncertainty among American business owners and investors. Is this global uncertainty slowing the U.S. economy down? With the proliferation of outsourcing, wages once accrued by American workers (and spent in the United States) may now end up abroad—thus counting toward another country’s GDP instead. On the other hand, some data indicate that U.S. manufacturing may be rebounding once again. If students choose to turn the focus of their essay beyond domestic conditions, they should be sure to explain how they impact U.S. growth.
A wealth of possibilities
This primer is intended to get students thinking about the topic. It is far from the last word on the subject, but rather is a stepping-off point for students who want to write a good essay. Many resources are available to draw upon, and essays can take many different approaches. The judges will reward creative thinking in addition to careful research, persuasive writing and solid economic thinking. Good luck!
If you have any questions, email EssayContest@mpls.frb.org or call 612-204-5168.