Bullish economic forecasts for 2021 all tend to have one thing in common: an expectation that Washington will pony up another big stimulus. (Vaccine optimism is pretty universal among bulls and bears.) And it now looks like that expectation is going to be met to the tune of some $900 billion. The news about a big COVID relief deal is even making some analysts more optimistic about the coming year. “The additional $900bn stimulus that looks likely to be passed by Congress within the next day or two means that we are raising our GDP growth forecast for 2021 to 5.5%, from 5.0%,” said Capital Economics in a note to clients on Monday. So a boomy 2021. And maybe 2022 as well.
But then what? Back to the post-financial crisis “new normal” economy? After the post-pandemic upward blip, the economy will need to generate stronger productivity growth if it’s also going to generate stronger sustained economic growth. I’m somewhat hopeful that we’ll get it. And if we do, America’s scientists and entrepreneurs will deserve lots of credit. Thinking about the possibilities of what may come and what is needed to make them happen reminded me of one of President Reagan’s great speeches, although it’s not his most quoted. It should be. From Reagan’s address — words both inspirational and educational — to the students of Moscow State University on May 31, 1988:
Like a chrysalis, we’re emerging from the economy of the Industrial Revolution — an economy confined to and limited by the Earth’s physical resources — into, as one economist titled his book, “The Economy in Mind,” in which there are no bounds on human imagination and the freedom to create is the most precious natural resource. Think of that little computer chip. Its value isn’t in the sand from which it is made but in the microscopic architecture designed into it by ingenious human minds. Or take the example of the satellite relaying this broadcast around the world, which replaces thousands of tons of copper mined from the Earth and molded into wire. In the new economy, human invention increasingly makes physical resources obsolete. We’re breaking through the material conditions of existence to a world where man creates his own destiny. …
But progress is not foreordained. The key is freedom — freedom of thought, freedom of information, freedom of communication. The renowned scientist, scholar, and founding father of this university, Mikhail Lomonosov, knew that. “It is common knowledge,” he said, “that the achievements of science are considerable and rapid, particularly once the yoke of slavery is cast off and replaced by the freedom of philosophy.” You know, one of the first contacts between your country and mine took place between Russian and American explorers. The Americans were members of Cook’s last voyage on an expedition searching for an Arctic passage; on the island of Unalaska, they came upon the Russians, who took them in, and together with the native inhabitants, held a prayer service on the ice.
The explorers of the modern era are the entrepreneurs, men with vision, with the courage to take risks and faith enough to brave the unknown. These entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States. They are the prime movers of the technological revolution. In fact, one of the largest personal computer firms in the United States was started by two college students, no older than you, in the garage behind their home. Some people, even in my own country, look at the riot of experiment that is the free market and see only waste. What of all the entrepreneurs that fail? Well, many do, particularly the successful ones; often several times. And if you ask them the secret of their success, they’ll tell you it’s all that they learned in their struggles along the way; yes, it’s what they learned from failing. Like an athlete in competition or a scholar in pursuit of the truth, experience is the greatest teacher.
And that’s why it’s so hard for government planners, no matter how sophisticated, to ever substitute for millions of individuals working night and day to make their dreams come true. The fact is, bureaucracies are a problem around the world. There’s an old story about a town — it could be anywhere — with a bureaucrat who is known to be a good-for-nothing, but he somehow had always hung on to power. So one day, in a town meeting, an old woman got up and said to him: “There is a folk legend here where I come from that when a baby is born, an angel comes down from heaven and kisses it on one part of its body. If the angel kisses him on his hand, he becomes a handyman. If he kisses him on his forehead, he becomes bright and clever. And I’ve been trying to figure out where the angel kissed you so that you should sit there for so long and do nothing.” [Laughter]