What we learned: the national economy

Our work is focused on how Michigan’s economy is performing compared with the nation’s and why.  To do that we need to understand what is driving the national economy.

At the core of our work is the basic belief, since we were founded twenty years ago, that globalization and technology are mega forces that are transforming the economy.  That the places that are doing best are those that are aligning with—rather than resisting—these new realities.  And that most of the prosperous states and regions have increasingly knowledge-based economies.

That trend, as we detail in our upcoming new report, continues.  But although it is not the topic of the report—or our work—it is important to note that the period from 2001–2009 was noteworthy for its weakness nationally.  The expansion from 2001 to 2007 was anemic, with low rates of job and income growth, largely driven by the unsustainable housing and construction bubble, and then followed by the worst downturn since the Great Depression.

From 2001 to 2009, the country basically created no new jobs: down 0.8%.  What was gained between 2001 and 2007 was lost in 2008 and 2009.  And the job growth was narrowly focused primarily in health care and education, rather than the more broad-based expansion seen in all sectors of the knowledge-based economy in the Nineties.

In terms of income—our primary focus—growth was slow: up 5.1% in $2009. Quite worrisome is that a lot of the income growth came from transfer payments rather than employment earnings or investment income.  Private sector employment earnings, which were 64.9 percent of total income in 2001, fell to 59.1 percent in 2009, while transfer payments grew from a 13.6 percent share in 2001 to 17.6 percent in 2009.

For the country to do well—to become more prosperous—those trends will have to be reversed.  Slow private sector employment and employment earnings growth, combined with strong transfer payment growth, is not a path to a sustainable rising standard of living.

As we worked on the new report, Don Grimes and I often discussed whether the pattern of the past decade is likely to be the future of the American economy. Or is it more likely that we return to the robust job and income growth of the Nineties, minus the tech bubble. The honest answer is no one knows. No one could have reasonably predicted the Nineties boom or how anemic the last decade would be.

What we are confident of is that, no matter whether the national economy is characterized by fast or slow growth,  globalization and technology will continue to push the American economy to be more knowledge-based.

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