2013 Morningstar ETF Invest Conference
Reasons to be bullish on the US economy
Vanguard economist Joseph Davis lays out reasons for optimism about the US economy over the next five-to-ten years.
InvestmentNews' exclusive coverage from the 2013 Morningstar ETF Invest Conference, taking place Oct. 2-4 in Chicago, Il.
Why am I bullish on the U.S. economy in the
next five to 10 years? Again, I think it's important
to take a longer-term perspective because the U.S. economy has
challenges, but I think it's where we've seen the greatest
improvement. It's been a painful process, but if we look
at household balance sheets, corporate profit margins, and the pace
of innovation, we're seeing not just in United States but
globally and the ability for U.S. companies to compete on
a global basis, I would argue, is extremely strong. And
so, the return on investment is high and the share
of investment in the economy is yet historically fairly low.
And so, when you put those ingredients together, if we
have greater clarity in policy measures going forward, I think
we'll be pleasantly surprised over the next five or 10
years that the economy can grow beyond the 2 percent
threshold it's been stuck in for the past three years.
So, what are near-term challenges for U.S. economy? There are
several. Some of it relates to the uncertainty with respect
to the debt ceiling clearly, which runs the risk of
having acting on the so-called uncertainty tax on the U.S.
economy over the next three months in the same way
that similar conversations and developments had in the middle of
2011. But there's other challenges as well. Some of it
just continues to be-- as we continue to work through
some of the debt paydown from consumers, but by and
large, the number of threats to the U.S. economy today
are fewer in number than they were just three years
ago. And for the first time, in a long time,
the major industrial economies of Europe, U.S., England, China, and
Japan are all starting to expand. So, I think there's
reasons to be cautiously optimistic, but there is policy risk
over the next several months. I had mentioned declines, you
know, the potential for us to underappreciate that we may
be sitting in the midst of a third industrial revolution
and may not fully perhaps appreciate what that may do
positively to [unk] growth trends in the productivity and the
returns on investment in capital globally over the next generation.
And then, we're continuing to see that sort of fundamental
development in computer technology and enabling technology through a whole
rash of industries. And-- But that's creative-- this sort of
creative destruction is a very disruptive process. And clearly, there
are industries that are going through some adjustment, but in
aggregate, this is far from a zero-sum game and the
creativity we're seeing in everything from health care to energy
development to manufacturing to other areas of manufacturing and materials,
I think, have run the risk of being unappreciated. And
if history is any guide, they will continue to be
the fuel for long-term economic growth and productivity.