Joel Kurtzman, Senior Fellow at the Milken Institute, recently sat down with Financial Sense to offer a deep dive into his latest book, “Unleashing the Second American Century: Four Forces for Economic Dominance.”
By looking at a wide-range of data and recent trends, Joel makes a very persuasive case that America, while faced with many challenges, still has a bright future ahead. Joel focuses his book on four transformational forces that stood out from his research: unrivaled manufacturing depth, soaring levels of creativity, massive new energy sources, and significant amounts of capital waiting to be invested.
Contrary to doomsday predictions, Joel believes that the U.S. is poised for a second era of economic and political dominance on the world stage.
Here are a few excerpts from his interview (click here for audio link) that recently aired to our subscribers.
Financial Sense: Joel, you’ve made a 180-degree turn from many of the pessimistic books you've written on the US in the past: The Decline and Crash of America’s Economy, The Death of Money, Eating Our Own Seed Corn, and others. What was it that turned you around?
Joel Kurtzman: My change of heart came from a deep dive into the statistics of the American economy, number one. Number two, we have so many new factors at work. We have a tremendous growth in energy right now. United States is the number one oil producer in the world—ahead of Saudi Arabia and ahead of Russia. That is new and unprecedented that a country comes back from being the largest importer of oil in the world to now being an exporter. We also have tremendous resources of natural gas and the one thing everybody seems to ignore is that the United States is still the most creative, innovative country in the world in many many industries—not just computers, but biotech and many others.
Financial Sense: What’s one major factor that could drastically alter the US outlook in a rather sudden way?
Kurtzman: We have somewhere between $4.5 and $5 trillion in cash within the bank accounts of our largest companies. That's a massive amount of money; it’s undeployed and it's ready to be invested. When that starts happening and we start investing again in a big way in the United States the way Apple is doing in Arizona and the way Tesla is now—we don't know what state...but Tesla is going to be the world's largest battery manufacturer. When this happens in earnest, it will be transformative.
Financial Sense: One of the four transformative forces you list in America's favor is its unrivaled manufacturing depth. Most people think, however, that the US doesn't produce much of anything anymore, but just consumes products from around the globe. What's your response to that?
Kurtzman: It's absolutely untrue. The US is still the world's largest manufacturing country. We make more than anyone else and China has caught up in some years but we are pulling ahead again. So there's a lot of misinformation about what's going on. Now, what's true is that most of the things we make, consumers themselves don't buy. I mean they don't buy radar equipment, they don't buy jet engines, and they don't buy jet aircraft. They buy other types of products. And we are very big in the massive manufacturing area of creating the infrastructure for the future.
Financial Sense: Joel, why do you believe the doomsday industry is so popular today?
Kurtzman: I think there are a number of reasons why and its endemic...The mood in Washington has been so toxic that it has really clouded the way people look at the United States. It's clouded the way that the debate has been going and its made people despondent. I mean when you look at how little support there is for Congress, how little respect for government there is in general, you see that we're in a very toxic environment. I think that has really made it difficult for people to see the reality that's going on.
Financial Sense: College costs are soaring and some think that this will be the next great bubble. However, what are some of the good things coming out of US colleges?
Kurtzman: We need to start thinking of these universities as investments because when you consider the return on rather small government funding of a school like MIT you see that we are talking about trillions of dollars in revenue, millions of jobs created, thousands and thousands of companies. And this isn’t slowing down by the way...We continue to see 40 or 50 biotech companies started a year every year out of MIT. We see other types of high-tech companies in computing and manufacturing started from MIT. And MIT is just one school within the country. Carnegie Mellon has given birth to lots of computer companies. Stanford we know has given birth to Google and many computing companies; Apple and so forth all come out of that area around Stanford. Berkeley is another school where we have tremendous tremendous growth as a result of it. By the way, this didn't happen on accident. This was planned after WWII when the government had the foresight to recognize that science, technology, engineering, and math would be the future of the US economy and we invested in those capacities. And it's been paying off for 75 years and will continue to pay off as long as we continue to invest. So this is not a random event. The US has achieved this greatness in science because it was seen as important for the future and we have pursued it with tremendous energy as a result.
Financial Sense: In your book, you mention an organization that many may not be familiar with. Let’s talk about DARPA: what it is, how it’s run, and, more importantly, the unique way it reflects American creativity.
Kurtzman: I'm glad that you raise that issue because DARPA does not get the kind of attention it should. DARPA...stands for the Defense Advanced Research Projects Agency—that's why we call it DARPA, because it's such a boring government name; but its anything but boring. When Sputnik was launched by the Soviet Union in 1957, President Eisenhower said that we were surprised—we were caught off guard. We had no idea that the Russians were that much farther ahead with regards to space than we were. And we needed to do something about it. So the reason for setting up DARPA was so that the US would never be surprised by the developments going on in another country. In other words, we would never be eclipsed as we were in 1957 by the launch of Sputnik. Over the years a culture has developed at DARPA of outright creativity, crazy creativity, practical creativity. And it has produced enormous advances for the country. For example...in robotics it's quite amazing what DARPA has done. I mean we all know about some of the work where we excel in robotics, but some of the inventions are artificial limbs for servicemen in particular—service personel who have been wounded. These artificial limbs in some cases now are controlled by the brain of the wounded warriors. This is a tremendous advance to be able to control a machine directly with your brain...
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