Christine Benz: Hi, I'm Christine Benz for Morningstar.com. I recently attended the Morningstar Ibbotson Conference, where I had the opportunity to sit down with professor Marvin Zonis. He is professor emeritus at the University of Chicago's Booth School of Business, and we discussed his outlook for growth in the U.S. economy.
Let's talk about the U.S. You highlighted the United States' relative lack of growth alongside emerging economies like China, India and so forth. You note that that is probably going to be a fact of life for the foreseeable future, but do you think that's OK?
Marvin Zonis: I think that's OK, and I think there's no question that when people talk about the decline of the U.S. et cetera, in one sense they are absolutely right. The United States has declined relative to the rest of the world because countries like China, India, emerging markets are growing much faster than the United States. So the percentage of world GDP to which we contribute is diminishing.
So that means we're in relative decline. This doesn't scare me, in fact, to the contrary, I'm really thrilled that other countries are growing faster than we are, and I would love to see the rest of world get rich. And I think when everybody else is rich, it will be a massive benefit to the United States, as for example was the case, when Japan got rich. We haven't gotten poorer; we got richer. So that's true.
Now the question of course is not: Are we in relative decline? The question is: Are we in absolute decline? And that's a really big question. I happen to be one of the optimists about the future of the United States. There are certainly a lot of pessimists and you can't pick up the paper these days without reading some kind of negative story about the United States. But in my view, the United States has tremendous strengths going forward, and those strengths are going to propel a surge of growth in the American economy.
Let me just give you some examples. One of them is certainly technology. We are in a world of exponential technological growth, and when that happens you can't predict the future. But there are tremendous opportunities for massive increases in what I call, "killer apps," which is to say, the possibility of major innovations that can help transform the economy. So examples of killer apps are the Internet, email, railroads, electricity. Those all occurred in the past and they can fit right in there into that massive exponential growth curve.
Well [now there are] genomics, the increase in the computing power of chips, the putting of sensors into virtually everything in the world so we'll have a connected universe, the technological strengths of our universities, which produces more and more, not necessarily American innovators, but innovators from all over the world who are nonetheless innovating in this country. So that's one huge area of positive growth for the United States.
The other one is, of course, energy, and we've had this remarkable situation in which a private company in Texas, Mitchell Energy, worked for years and finally figured out a way to extract natural gas and oil from shale rock. The result of that is, we have a massive supply of natural gas and when that happens of course prices go down. When prices go down, use patterns change so the amount of coal we use to generate electricity has plunged, the amount of natural gas we have has gone a way up.
Now what difference does that make? The difference it makes is that electricity prices in the United States have plummeted. So, for example, electricity prices in Japan are 5 times the cost of electricity prices in the United States. Electricity prices in Germany, 4 times. Electricity prices in the rest of Europe at least 3 times.
So what does that mean? A tremendous competitive advantage for companies that use lots of electricity, industrial enterprises, and so lots of those are going to be returning to the United States, not just to take advantage of the cheap energy, but because we've seen wages in China go way up. And so they are welcome back in the United States; they are going to return to United States. We've seen a lot of indications of that, and that will fuel the surge that I predict will happen in the American economy.Read Full Transcript
Benz: You highlighted some headwinds in your presentation, so let's talk about some of the key ones. One of the main ones you highlighted, and it's top-of-mind for a lot of people, is growing income inequality.
Zonis: Income inequality is a huge problem, and it appears to be the case that it is not just growing, but it's growing for a couple of reasons that I think we understand. One is that, while productivity has gone up hugely, the wages of American workers have not gone up, so the profits going to corporations have increased massively, and the profits going to the owners of corporations have increased massively, while the wages of workers have not gone up. So wages as a percentage of corporate sales are lower today than they have been for a couple of decades, that's number one. Why that's happening, I suspect, has to do with the lack of competitive advantage by workers. There are a lot of workers out there; companies don't have to increase their wages.
The second thing that's really obvious is that a lot of the inequality is explained by the increase in wages that are going to people with very high educated skills, so the computer operators, the people who operate computer-driven lathes and manufacturing processing and what have you, biotechnology. So those are the guys who are benefiting, whereas the average worker is not benefiting. The result of that is this massive increase in inequality with the top 1% of the population between 2012 and 2011 increased their net well-being by $200 billion, while the bottom 99% of the population saw their median income go down by 4%. That's the inequality.
Now question is again, so what? Who cares? Well, the answer to that is, we know from countless studies over decades and years that inequality contributes to political instability, and so the danger for the United States is, if we don't address this more successfully, we can look forward to more political instability ahead.
Benz: Professor Zonis, thank you so much for covering such a broad range of topics, we appreciate you sharing your insights.
Zonis: Thank you very much.
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