💥 How a New Roaring '20s could be like ... the Booming 1990s. Still.

Lots of investment + big tech progress could do the trick. Sound familiar?

Quote of the Issue

“The second half of the 1990s is certainly the most Up Wing period within the living memory of most Americans.” - James Pethokoukis, The Conservative Futurist: How to Create the Sci-Fi World We Were Promised

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I have a new book out: The Conservative Futurist: How To Create the Sci-Fi World We Were Promised is currently available pretty much everywhere. I’m very excited about it! Let’s gooooo! ⏩🆙↗⤴📈

• Amazon

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The Essay

💥 How a New Roaring '20s could be like ... the Booming 1990s. Still.

I was an early adopter of the notion that the 2020s could be a “New Roaring ‘20s.” Back in December 2020, I wrote “Is the great stagnation over? Why America could be primed for another Roaring '20s” for The Week magazine. My thesis back then: Advances in AI/machine learning, such as Google DeepMind's protein-folding breakthrough, suggested AI/ML could be a powerful general-purpose technology, or GPT, that could make workers more productive economywide — especially researchers.

In this way, AI/ML in the 2020s would be like the GPTs that powered the economic and productivity boom of the 1920s: electrification and the internal combustion engine. (Note: My enthusiasm for AI as a GPT preceded ChatGPT and the emergence of generative AI applications by two years.) From 1920 through 1929, the US economy grew by a robust average of 3.4 percent annually, inflation-adjusted, with productivity growth at 2.4 percent. But all that economic roaring came after a rough start: a nasty depression that started in January 1920 and ended in July 1921. After the downturn, however, the economy grew at nearly 5 percent a year for the rest of the decade.

The potential parallels are obvious. The Roaring ‘20s was driven by technological progress, occurring after a pandemic (the 1918 Great Influenza) and economic contraction. The New Roaring ‘20s would also be driven by tech progress, coming after a pandemic (COVID-19) and economic contraction (the Great Lockdown).

via Jason Furman on X

Yes, we got a boomy 4.9 percent GDP report for the third quarter of this year (although it may not appear so boomy on the above chart due to pandemic-era volatility). But Wall Street expects a deceleration from here on out. Some bank economists still see a recession next year, and even the more bullish ones see GDP growth more like 2 percent or so. Guess, the New Roaring ‘20s will have to wait until at least 2025? Ugh.

One bank’s case for a Roaring ‘20s

But maybe there’s still good reason for optimism. For the past couple of years, the bank UBS has been making its own case for a Roaring ‘20s, using the boomy 1990s as the relevant historical analogy. It’s an analysis that the UBS investment team returned to in a new report: “Another Roaring ‘20s for the US: It depends on the supply side.”

The envisioned economic scenario for a Roaring ‘20s:

• sustained high GDP growth of 2.5 percent or above (about a half point faster than current expectations);

• moderate inflation between 2-3 percent;

• a 10-year Treasury yield around 4 percent;

• and a federal funds rate between 3-4 percent.

This scenario relies heavily on the supply side of the economy, which UBS sees as currently challenged by issues like labor and housing shortages. (These supply constraints are juxtaposed with solid household finances, expected to support demand this decade, unlike the 2010s.) Four major trends are projected to shape the supply-side dynamics this decade — though not all will be good for productivity growth, an accleration of which sits at the core of the UBS thesis:

• a capital expenditure boom driven by prior underinvestment and labor scarcity;

• a significant investment in the green energy transition;

• changes in security and a move towards deglobalization requiring vast investment;

• and … wait for it … the deployment of AI that could act as a positive supply shock.

Some key charts expanding upon the thesis: