Economy Matters

In terms of bringing the economy back to some semblance of normality, I think we've come a long way. As Dennis [Lockhart, Atlanta Fed president] has said in recent speeches, it really does feel like we're almost there.

CD: What about long-term reasons to be optimistic?

DA: They are what they've always been. For all the warts, the U.S. economy is still the most dynamic developed economy in the world. The entrepreneurial orientation of our economy, though challenged, is still there. Combine that with the obvious dramatic advances in technology and our ability to harness that technology. And more than ever in my lifetime, the promise of that is limitless, it seems.

CD: What are the big short-term concerns?

DA: Short-term concerns are mainly attached to developments outside the United States. Though Europe seems to be on track to give us some comfort, that experiment is still ongoing.

And maybe even more important, everyone's trying to figure out what's going on in China and what it means. China is still trying to manage the transition from a completely locked-down, insulated, controlled economy to a market economy. They've managed it quite well, almost astoundingly well. But they've been able to manage it through maintaining a fair amount of control. And the question becomes, "How long you can do that before the fundamental tension between control and laissez-faire begins to become irreconcilable?" We may be seeing the answer to that soon. The consequences of how it plays out are probably pretty wide-ranging.

CD: What are the biggest long-term concerns facing the U.S. economy?

DA: One of the things we've begun to emphasize here at the Atlanta Fed, through activity in the Center for Human Capital Studies and the CED [Community and Economic Development department], is workforce development. People should read that as our belief that, for the longer term, a great deal of our economic prospects as a nation is tied to how you enhance the upward mobility and opportunities for, basically, everyone. But more broadly, the reason we care about this issue relates to concerns about the quality of life of our citizens.

It's utterly apparent that globalization and technology have changed the nature of the game in labor markets. The way I think about it is: one of the great development successes of the late 19th and 20th centuries was the public education system. It made accessible to every child in the country the capacity to develop the capital so you could walk out into the world and earn a middle-class living. The nature of that deal has changed. It's just no longer true, at least with respect to the typical high school education. And so how we reconstruct that opportunity may be the largest economic question we have going forward—hence our interest in addressing these things.

To me, that's job one. It's tied up in other questions, of course. For instance, we've now had, going on half a decade at least, very poor productivity growth. Productivity is the engine that provides opportunity for everyone. So getting to the bottom of why productivity growth seems to have stalled is a really important question, which I don't think we're anywhere close to getting our heads around. It's a great paradox that in this moment of incredible leaps forward in technology, to paraphrase Nobel Prize winner Bob Solow, you can see technology everywhere but in the productivity numbers.

CD: We have theories on why productivity growth is lagging, right?

DA: On the very pessimistic side, people say things like, "we're harvesting technology for the purposes of enhancing consumption, not enhancing production." A plethora of iPhone apps makes life kind of fun for everyone, but it's not going to show up as anything that enhances productivity in the marketplace. But of course an app can create a disruptive business model. Uber has turned thousands and thousands of automobiles that were mainly consumer devices into producer devices. So I think that idea—that technology is only enhancing consumption—is a little oversold.

Another alternative theory would be that we just haven't yet figured out how to measure productivity from these technological developments. There is a history of industrial revolutions that seems to indicate that rapid technological advance actually doesn't make the world look more productive early on because no one's quite sure how to use the technology. Maybe you're not sure how to measure what you do with that technology. But maybe also it's costly--costlier than it will be when things move to scale, for example. So it could be that this is all about some transition to a higher place, and we just are in a phase of development and harnessing technologies where the full promise isn't apparent yet.

CD: Say we completely leave behind coal-fired power plants for some alternative.

DA: Exactly. That's an expensive proposition. And you won't figure out how to do it exactly right at first. But another 15, 20 years from now things might look a lot rosier then they look as you're struggling through what to do in real time.