View / The world’s biggest economy is in uncharted territory

Jerome Powell came in hot yesterday, as central bankers go: Flatlining job growth is “what the economy needs” given “nonexistent growth in the labor force, which we’ve never had in our history,” he said yesterday. “That is balance [but] not a really comfortable balance.”

It was a remarkable acknowledgement that the world’s biggest economy is in uncharted territory. Big demographic shifts — an immigration crackdown and declining birth rates — have stalled the traditional engine of “more people, more output.”

The US economy is still growing. But if America was a company, it would be a “lifestyle business,” a specific corporate burn that describes a company that exists to sustain its owners rather than to conquer a market. Lifestyle companies aren’t managed for growth. They don’t scale; they just are, making enough money to cover an owner’s costs and maybe mail it in on Fridays.

If the US is no longer growing its headcount, it’s running the country for the benefit of the existing shareholders — the current workforce and asset owners — rather than building for a more ambitious future.

There’s nothing wrong with lifestyle businesses — just ask Europe — but they don’t work if they’re loaded up with a bunch of debt. (Happy $39 Trillion Day to those who observe.) Servicing that debt, to say nothing of closing the deficit that constantly adds to it, requires massive economic growth.

This is, of course, where AI comes in. If you believe the AI optimists, we’re going to get more economic output with fewer people, rewiring that people-to-GDP engine. But if you believe the pessimists, we’re looking at a world of abundance and leisure where the robots make everything cheaply, but nobody has a job. That is also, to use Powell’s phrase, a balance, but not a really comfortable one.