Itâ€™s the Economy: Will We Be Better Off in 2016?

Illustration by Peter Oumanski

Now that the campaign is almost over, it's clear that this presidential cycle was all about the economy. Just not the economy we're actually entering. This thought crossed my mind during the second presidential debate as Mitt Romney declared that, if elected, he would label China as a currency manipulator. It was a rehearsed entreaty meant to appeal to thousands of frustrated manufacturing workers and their bosses in Rust Belt states. But it mainly confirmed how far we are from understanding our place in the new global economy.

Deep thoughts this week:

1. This election was all about yesterday's economy.

2. Time to figure out what gadgets people want in China.

3. How does a president manage a waning empire?

It's the Economy

Adam Davidson translates often confusing and sometimes terrifying economic and financial news.

Not that long ago, the U.S. had that global economy all to itself. From the 1950s to the 1980s, it was the world's dominant producer and consumer. In countries spanning Europe to Latin America, and throughout Asia, success was determined by how well they could siphon off a bit of this incredible growth. Things began to change in the 1970s, however, when Japan and Germany started making cars and factory equipment and electronic gadgets that beat their American competitors. And for the next 30 years, the U.S. struggled to adjust to increasingly competitive Asian and Latin American producers. But as long as it remained the world's largest consumer market, the U.S. maintained lots of leverage. The government persuaded Pakistan to join the global war on terror, for instance, partly by promising its sock manufacturers duty-free access to its market.

It's useful to consider the framework of Ian Bremmer, president of the Eurasia Group, a political consultancy. American power during the past half century, Bremmer says, has been based on a strong military and an enormous market — one that can reward and punish. And while the former has maintained its standing, the rest of the world is becoming much less fixated on the latter. Romney and Barack Obama can promise to punish China all they want (Obama, in fact, made an identical point in 2008), but their statements merely suggest either that they don't realize America's economic power has diminished or (more likely) that they're just too afraid to say it out loud. And that's too bad. Those Rust Belt voters would be better served, Bremmer says, if the next president could persuade American businesses to stop complaining about China and instead focus on making goods that its consumers want to buy. For decades, Chinese businesses studied the American market. Now it's time to play catch-up.

As this political cycle comes to a close, it's clear that the U.S. has entered a new economic chapter. By the next election, the upheaval of the past few years will have (hopefully) settled, and we'll be looking at a clearer vision of our future. I asked several leading experts to project what the U.S. will look like by 2016, and there was a consensus. Instead of a sudden bounce back, Harvard's Jeffry Frieden told me, there will be steady but far-too-slow growth. Unemployment will be at around 6.4 percent, according to Nigel Gault of IHS Global Insight, an economic forecaster. More significant, by 2016, Frieden and Bremmer noted, the U.S. will be adjusting to an economy in which inequality is a structural fixture. There will be millions who are unable to get work, and tens of millions more who will have to adapt to lower income. Meanwhile, those with college and advanced degrees will experience a country that has rebounded. Their incomes will grow.

China's economy probably won't eclipse the U.S. economy until some time in the 2020s, but by 2016, far fewer Americans will believe that the U.S. can stop China from manipulating its currency or doing whatever else it wants. By then Americans will probably have experienced its economic might firsthand. Brent Iadarola, a director at the industry-research firm Frost & Sullivan, told me that the new global economy will look like our current mobile-phone market. Nearly every American adult has a cellphone, but only 40 percent of them have an iPhone, Android or other smartphone. As such, the industry is expecting rapid growth in the next few years. By 2016, though, the U.S. market should be saturated, and smartphone manufacturers will have to add a lot of new features just to get a small number of people to upgrade. There won't be large growth or large profits in the U.S. The major companies — and the secondary economy of case makers and app designers — will be focused on the tastes of emerging markets in Asia, Eastern Europe, Latin America and Africa.

Adam Davidson is co-founder of NPR's "Planet Money," a podcast, blog and radio series heard on "Morning Edition," "All Things Considered" and "This American Life."