The US Economy in 20 Years

This forecast for the US economy in 20 years is based on two main assumptions:

First, scientific and technological progress will not be just gradual but transformative, driven by Generative Artificial Intelligence, leading to strong productivity and economic growth.

Second, the changes in stock prices over the past decade are indicative of future economic activity in the next 20 years. This means that a disproportionate amount of the growth will come from the US, and within the US, from West Coast tech companies.

In the past, there have been periods of strong technological progress and productivity growth, but they were never as concentrated in one sector and one region of one country as is anticipated now.

Scientific and Technological Improvements

In the next 20 years, the world will experience unusually strong progress in scientific and technological knowledge and applications due to the following factors:

1.     Generative AI as a Major Shift: Generative AI represents more than a gradual improvement in technology—it is a significant leap forward.

2.     Accelerated Research and Development: AI is speeding up R&D processes, leading to faster breakthroughs across various fields and quicker product development.

3.     Pandemic-Driven Digital Transformation: The COVID-19 pandemic triggered a rapid shift to remote work, education, healthcare, and other activities. As adults and students adapted to remote lifestyles, digital technology use soared, increasing digital literacy. At the same time, businesses accelerated digital transformation. The world is now better prepared and equipped to integrate further digital advancements.

4.     Growing Scientific Contributions from Asia: Scientific contributions from Asia, particularly China and India, are exploding, significantly accelerating global scientific progress.

5.     Transformative Medical Advances: Medical advancements are now achieving significant leaps rather than incremental improvements, dramatically changing healthcare. Over the next 20 years, transformative health outcomes are expected, including improved chronic disease management, increased longevity, better healthcare accessibility, and enhanced quality of life.

West Coast Tech Companies Will Dominate

The rapid growth of West Coast tech companies will continue, with transformative implications for the U.S. economy. These companies are expected to account for a significantly larger share of economic activity in the future. As highly productive enterprises, their growth alone will contribute to increased productivity in the U.S.

In addition, with substantial cash reserves and high market valuations, West Coast tech companies are likely to accelerate their acquisition of startups and existing companies while expanding into other sectors. By doing so, they will introduce efficiencies and innovations that enhance productivity across the broader economy.

It is as though the nation’s resources are being reallocated, enabling these highly efficient and innovative organizations to control a larger share of economic activity. This reallocation is expected to further accelerate economic growth.

Which Will Benefit the U.S. as a Whole

Overall, the U.S. economy is likely to grow much faster than many anticipate, with annual productivity growth of 2.5% not being unrealistic. The economic gap between the U.S. and other advanced economies is expected to widen significantly, particularly among the top percentiles of the income distribution. The U.S. will also benefit from an increasing brain drain from other countries, as the widening salary gap for top talent between the U.S. and other advanced economies attracts more high performers seeking opportunities in the U.S.

Under the Hood, Not So Good

Over the next 10 to 20 years, workers' share of economic gains in the United States is projected to decline significantly.

The rapid advancement and widespread adoption of generative AI and other emerging technologies are expected to substantially boost business productivity and profitability. However, these economic benefits will disproportionately favor capital owners, particularly tech investors and senior executives, further widening the gap between them and the workforce.

A significant number of jobs are likely to be eliminated over the next two decades, but, as history has shown, these losses will not occur uniformly. Instead, they are expected to be concentrated during and immediately after recessions. Recessions often act as catalysts for workforce reductions, as companies face heightened profitability pressures and feel they have the implicit "license" to implement large-scale layoffs. The next recession, therefore, could result in particularly severe job losses.

Occupations likely to grow in share will be those less exposed to automation and experiencing growth due to other factors. Healthcare and community and social service occupations are prime examples.

An increasing share of income is expected to come from wealth sources such as dividends, interest, and rent, further concentrating financial gains among those with substantial capital investments. This shift will exacerbate income inequality. While the primary benefits will flow to the top few percentiles, particularly the ultra-wealthy, those in the bottom 80 or 90 percent—who generally lack significant capital assets—are unlikely to see much improvement in their economic position.

The growing concentration of income and wealth among the highest percentiles will also drive increased spending on luxury goods and services.

White-Collar Workers Will Be More Negatively Impacted Than Blue-Collar Workers

Within the workforce, blue-collar and manual service workers are expected to continue experiencing faster wage growth than their white-collar counterparts for several reasons:

1.     Shift in Educational Attainment Among Labor Force Entrants: New entrants to the labor force are significantly more likely to hold a college degree than retiring workers. This trend reduces the supply of workers without a college degree—those who typically fill blue-collar roles—sustaining labor shortages in these occupations and driving upward pressure on wages.

2.     Impact of Generative AI on White-Collar Jobs: Unlike previous technological shifts that primarily affected less-educated roles, generative AI is expected to impact white-collar occupations disproportionately. This could reduce demand for certain white-collar roles while leaving many blue-collar jobs less affected.

3.     Decline in Undocumented Immigrant Labor: Over the next 20 years, the proportion of undocumented immigrants contributing to the U.S. economy is expected to decline significantly. This will particularly affect sectors that rely heavily on this workforce, such as construction, agriculture, production, and certain service industries. The result is likely to be labor shortages and faster wage growth in many lower-paying occupations.

4.     Demographic Changes Due to Fertility Rates: Declining fertility rates in the U.S., particularly among populations less likely to attain a college degree, will further reduce the future supply of workers without higher education. This demographic shift will exacerbate labor shortages in blue-collar fields, contributing to faster wage growth for these workers.

These factors combine to create a labor market where blue-collar and manual service workers are in relatively higher demand compared to supply, resulting in faster wage growth than in white-collar occupations.

Overall, the gap between the top 5-10% of earners and the rest of the workforce is expected to grow. However, within the bottom 90th percentiles, wage inequality is projected to decline.

College graduates from lower-ranked schools are disproportionately employed in roles highly exposed to AI, putting them at greater risk of underemployment and slower wage growth. As a result, the college premium, particularly for graduates of lower-ranked institutions, is likely to decline.

Regional Implications

West Coast Tech Companies' Impact: As discussed, West Coast tech companies are poised to dominate the U.S. economy. As these companies grow, businesses and regions outside the West Coast are likely to experience slower economic growth as a result. However, this negative impact is unlikely to be immediately apparent.

West Coast tech companies exert their influence in two primary ways. First, they dominate the development of future products and services. Second, they affect the market share of existing products and services. The first type of impact is likely the more significant, yet it is less visible because it does not involve dramatic layoffs or cutbacks in existing operations.

Another reason the impact of West Coast tech companies is less noticeable is their broad distribution across industries and regions. Unlike the decline of manufacturing, which devastated specific areas in the eastern United States, the influence of tech companies spans multiple sectors and does not disproportionately affect any one geographic region. This diffusion creates a "silent" negative impact, with long-term consequences that may only become evident over time.

Geographic Segregation Geographic segregation along educational and political lines is expected to intensify due to two main factors:

1.     Residential Preferences of Highly Educated Individuals: Highly educated individuals increasingly prefer to live in communities with others who share similar educational backgrounds. This trend, amplified by rising political polarization, leads to the formation of communities that are both educationally and politically homogeneous.

2.     Corporate Strategies and the Rise of Remote Work: The rise of remote work enables companies to strategically position highly educated employees and specialized functions in specific areas, while assigning lower-education roles to other regions. While this approach optimizes operational costs and accesses diverse talent pools, it results in geographic segregation based on education levels and job functions. Some regions will predominantly offer low-skill jobs with limited growth opportunities, while others will attract high-skill positions with better prospects.

These dynamics reinforce one another, creating a self-perpetuating cycle of geographic segregation in the United States. This segregation is likely to exacerbate regional disparities in economic opportunity and social cohesion.

Left Behind Areas

Areas that are falling behind economically are likely to increasingly align with the Republican Party. This political shift will coincide with a growing skepticism among Republicans regarding the value of higher education. Such skepticism is expected to contribute to stagnation or even a decline in four-year college enrollment rates, further exacerbating economic decline. This cycle of economic decline and educational disengagement is self-reinforcing and is likely to result in even more pronounced declines in the coming years.

Many of these left-behind areas were once manufacturing hubs. Despite fewer recent job cuts in the sector, they continue to suffer from long-term population losses and brain drain. These challenges, particularly prevalent in the Midwest, are expected to worsen. The enduring damage from the decline in manufacturing is far from over.

Concluding Thoughts

In conclusion, the United States is projected to experience robust economic growth over the next 20 years, driven by transformative technological advancements and the dominance of West Coast tech companies. This growth is expected to outpace that of most other advanced economies. However, alongside this prosperity, income inequality is likely to widen at a faster rate. The benefits of economic expansion are anticipated to accrue disproportionately to capital owners and top earners, particularly those connected to the thriving tech sector.

Regional disparities are also expected to intensify. The economic gains concentrated in the West will contribute to a growing divergence across different parts of the country. Geographic segregation along educational and political lines will become more pronounced, with some regions flourishing while others fall further behind.

As these dynamics unfold, the gap between positive aggregate economic indicators and the everyday experiences of the typical American is likely to grow. While the national economy shows strength, many individuals may not feel the benefits in their personal or community circumstances. This disconnect highlights the complex challenges ahead in ensuring that economic growth translates into broad-based improvements in living standards for all Americans.