“Do not waste any energy, make it useful” – Wilhelm Ostwald

This might have been the week when the national conversation about the US economy changed. To concerns about rising prices, you can now add worries about Federal Reserve actions to deflate rising prices. As one JPMorgan trader put it, “We are past inflation at this point. The only thing confirmed yesterday [by the Federal Reserve announcing its biggest rate hike since 1994] is that the Fed will (continue) to do whatever it takes to get inflation back to target. If that means slowing the economy to a halt and crashing the stock market, so be it.”

Will the Powell Fed push the economy into recession? Must the Powell Fed push the economy into recession? Either way, most economists think recession odds are rising, and fast. A whopping 70 percent of them polled by the Financial Times think the US economy will suffer a recession next year. Most Americans would probably disagree — but only because they think a recession is already here:

A basic question that might not be as basic as you think: Why are recessions bad? The obvious answer is that people lose their jobs during downturns, and along with that job loss comes financial hardship and emotional anguish. The unemployment rate rises whenever the overall economy shrinks. And sometimes it keeps rising long after the recovery begins. Jobless recoveries are hardly uncommon. Unemployment rose from 5.2 percent to 7.7 percent during and after the 1990–1991 Gulf War recession, from 4.2 percent to 5.9 percent during and after the 2001 Internet Bust/9-11 recession, and from 4.7 percent to 9.9 percent during the 2007–2009 Global Financial Crisis/Great Recession.

But a recession and resulting job loss don’t just disrupt a person’s life. Those things also disrupt the progress their life might have been making. The period after the GFC/GR is a telling and underappreciated example of this phenomenon. It was a recovery and expansion of historic length, a record 128 months, until COVID-19 hit. Great! (Then not so great.)

But it was also a rebound of historic slowness. As economists Jay C. Shambaugh (George Washington University) and Michael R. Strain (AEI) note in their 2021 NBER working paper, “The Recovery From The Great Recession: A Long, Evolving Expansion,” it took nine years in the post–GFC/GR economy for the unemployment rate to fall to what the CBO considers the “natural rate” of unemployment. In the previous three recessions, by contrast, it took five to six years for the jobless rate to hit that level. So quite the grind as the economy also grew at a historically slow pace of 2.3 percent a year. (Productivity growth, a frequent topic of this newsletter, also lagged behind that of the prior three business cycles.)

I mean, no one calls that period a “boom.” Yet its length eventually worked wonders on the job market, driving down jobless rates and raising demand for workers. While median real wages started rising in 2012, that tighter job market — “diminishing market slack” — eventually led to real wage gains for lower-income workers, too.

“For the last five years of the expansion, in fact, real wages were rising most rapidly for workers at the bottom quintile,” the authors point out. And as Strain has concluded, separately: “This highlights the importance of keeping expansions going as long as possible. A hot economy with tight labor markets is the best jobs and wages policy.”

Long expansions, uninterrupted by recessions, aren’t just good for jobs and wages. Considerable economic research suggests economic growth makes us better people and a better nation. For example, an analysis by MIT economist Daron Acemoğlu and a team of fellow researchers finds that support for democracy is driven almost entirely by people’s experience of successful democracy. “In particular, it is exposure to democratic regimes that deliver economic growth, peace and political stability and public services that makes people more willing to support democracy.” The 2015 paper “Going to extremes: Politics after Financial Crises, 1870–2014” finds that after a severe financial crisis, “voters seem to be particularly attracted to the political rhetoric of the extreme right, which often attributes blame to minorities or foreigners. On average, far-right parties increase their vote share by 30 percent after a financial crisis.”

Perhaps the most well-known analysis of the impact of economic growth on the nature of a society is the 2005 book The Moral Consequences of Economic Growth by Harvard University economist Benjamin Friedman. He makes a historical connection between economic growth and social justice, as well as between economic hardship and a retreat from tolerance. So perhaps it was no accident that the Great Society and civil rights movement coincided with the rapid economic and productivity growth of the 1960s. Friedman writes:

The experience of many countries suggests that when a society experiences rising standards of living, broadly distributed across the population at large, it is also likely to make progress along a variety of dimensions that are the very essence of what a free, open, democratic society is all about. Conversely, experience also suggests that when a society is stagnating economically — worse yet, if it is suffering a pervasive decline in living standards — it is not only likely to make little if any progress in these social, political, and (in the eighteenth-century sense) moral dimensions; all too often, it will undergo a period of rigidification and retrenchment, sometimes with catastrophic consequences.

I should note that despite all the talk about recession, the Powell Fed might yet thread the needle. It’s going to be tough. Michael Feroli, JPMorgan’s chief US economist, notes that its model points to a 63 percent chance of recession over the next two years and 81 percent odds that a recession starts over the next three. Tight labor markets, higher food and energy prices, and tighter financial conditions have created a tough environment. Not much room for error. Still, the bank’s economists are upbeat:

Our forecast expects the Fed to be largely successful in engineering a soft landing, at least through the end of next year. We anticipate that GDP growth moderates to a below-potential pace by the end of 2023 and that job growth slows enough so that the unemployment rate steadies out and then drifts gradually higher late in 2023. Inflation is expected to moderate noticeably, in part because some of the transitory factors that have been boosting inflation should ease and also because the expected softening in the economy reduces some of the more fundamental pressures. … [This] should be enough softening to allow the Fed to eventually pause the hiking cycle, albeit with rates in modestly restrictive territory. Of course this desired soft landing is not guaranteed, and Fed chair Powell himself has noted that achieving this goal may not be entirely straightforward.

As the above graphic shows, the Powell Fed will deserve plenty of credit for fixing its early mistake of getting behind the inflation curve and managing a soft landing where the economy continues to grow but inflation cools off to the central bank’s 2 percent comfort level. After the chaos of the past two and a half years, a long, strong, and steady expansion would be most welcome. Time to get the New Roaring Twenties started!

Eli Dourado is a senior research fellow at the Center for Growth and Opportunity at Utah State University, where his work centers on infrastructure, innovation, and economic growth. He’s also a leading analyst and evangelist on the potential of advanced geothermal energy. I recently wrote about the prospects of geothermal for my loyal Faster, Please! subscribers, and I’ve been eager to ask a few questions ever since.

1/ What is the level of investor/Wall Street interest in advanced geothermal? I get a lot of Wall Street research, and even nuclear fusion gets more coverage. Geothermal very rarely gets a mention.

I don’t get the sense that there is much Wall Street interest in geothermal yet. Wall Street usually gets involved once there is a successful private company to take public. With fusion companies like Commonwealth and Helion raising such enormous rounds, it makes sense for Wall Street to pay attention. The big geothermal investment rounds to date have been two orders of magnitude smaller. In that sense, geothermal is “behind” fusion.

Yet I believe geothermal will quickly catch up. My prediction is that we will see profitable advanced geothermal companies long before profitable fusion companies. Indeed, I doubt D-T fusion (one of the dominant approaches) will ever be profitable. There are dozens (!) of advanced geothermal companies that have started in the last year because they smell the profit opportunity, and it won’t take billions of dollars of R&D to get them in the black.

2/ How important is it for the traditional oil and gas sector to get involved if this industry is to scale and succeed? And how’s that going?

The oil and gas industry has experience with drilling and subsurface engineering at scale. Geothermal will succeed faster if oil and gas gets involved. From a resource development perspective, a lot of the same skills translate directly, so it is a no-brainer for an industry that would otherwise face increasing climate headwinds. I think they are watching closely and as experiments in the field continue to deliver promising results they will increasingly get involved.

If there is hesitation, I think the reason is mainly that oil and gas doesn’t have experience actually running the power plants themselves. Figuring out the exact geothermal business model that makes sense for large oil companies to pursue is still a work in progress. Maybe they will need to partner with an existing utility to get the expertise in both developing the resource and operating the plant.

3/ Are there significant regulatory barriers to be overcome?

It’s possible to deploy new geothermal projects under the current regulatory framework, but it takes way too long and adds a fair amount of risk, so it’s difficult to imagine geothermal reaching its full potential without some regulatory streamlining.

For traditional “hydrothermal” geothermal projects on federal land, the development time for a new project could easily take a decade. This lengthy timeline is driven in large part by the requirements of the National Environmental Policy Act—counting leasing and transmission, a geothermal project might have to go through six separate NEPA reviews. It would be helpful if Congress would step in and find that many of these development steps are unlikely to have a significant environmental impact, as they have done for oil and gas drilling on federal lands. This could streamline steps 4 and 5 in the chart below.

On state and private land, the obstacles are different (except in California, where CEQA [California Environmental Quality Act] is basically a state-level NEPA). One problem is that many states have not clarified who owns the heat. Is it the mineral rights holder? Is it the surface owner? In a few states it seems to overlap (but not exclusively) with water rights. A few states have banned fracking, which is necessary for most geothermal concepts. It’s not clear whether these bans are aimed solely at the oil and gas industry, and whether geothermal fracking, which has some differences, could be re-allowed.

Most geothermal projects, wherever they are located, will seek to connect to the grid. The need for transmission and distribution brings in another body of regulation. We need to simplify siting, permitting, and deploying these critical grid elements.

4/ What are the remaining key technological challenges to be overcome for geothermal anywhere? Do need significant R&D to happen? A moonshot?

I don’t think a true moonshot is necessary. Most of what is needed are incremental innovations that you get from learning by doing. As the geothermal market becomes bigger, drill bit companies will cater to it more, designing equipment that better withstands higher temperatures, pressures, and shocks than what the oil and gas industry typically deals with. People will experiment with new casing systems. The market for CO2 turbines will grow. So the number one thing we need is to get more projects in the field, so that they gain experience and innovate along the way.

There are non-incremental technologies that would be game-changers, like Quaise’s mm-wave drilling system. Even there, I don’t think the moonshot analogy works, as the private sector seems capable of funding this kind of development so far. (Disclosure: I am a Quaise investor.)

I’d rather see most policy effort go into getting the deployment/learning-by-doing flywheel going instead of funding technology development, if there were a tradeoff between them.

5/ What does the environmental movement think of advanced geothermal?

Insofar as they are paying attention at all, I think the reception is positive. There is some skepticism associated with oil and gas technologies like drilling and fracking, and of course, if you’ve spent the last several decades arguing that the oil and gas industry is the devil incarnate, it takes some effort to turn around and accept that the same people might hold a big piece of the solution for the climate transition. So it’s an adjustment.

Yet the value proposition for the environment is high and I think most environmentalists who have dug in want geothermal to succeed. Wind and solar have become very cheap, but they are nowhere as dense or firm as geothermal is. In addition, geothermal can have co-benefits like lithium extraction, which is a much cleaner way of getting the lithium we need for car batteries.

▶ Inside the U.S. government project to create tiny nuclear reactors like batteries – Catherine Clifford, CNBC | “Yasir Arafat is the technical lead of the microreactor project at one of the United States government’s preeminent nuclear research labs, Idaho National Lab, and he is leading the effort to build a tiny, relatively inexpensive micronuclear reactor. Beyond being potential clean-energy options for remote locations or small communities, the MARVEL micro-reactor could become a key component of a clean energy grid that includes renewable solar and wind energy and battery storage, Arafat said. ‘The entire hardware can be built in a factory, like the way we make automobiles or cars,’ Arafat told CNBC, allowing for the production of hundreds of microreactors a year.”

▶ This CRISPR pioneer wants to capture more carbon with crops – Casey Crownhart, MIT Tech Review | “Upping the natural abilities of plants to take up carbon dioxide could, if done on a large enough scale, help push down peak temperatures in a warming world. While many people associate carbon capture with trees, the [Innovative Genomics Institute founded by CRISPR co-inventor Jennifer Doudna] is focusing on agricultural crops. … One of the primary goals will be to tweak photosynthesis so plants can grow more quickly. By altering the enzymes involved, researchers could cut out energy-sapping side reactions, including some that actually release carbon dioxide. … Larger, deeper root systems can help store more carbon in the soil, because if a plant dies and parts of it are deep underground, the carbon in those pieces is less likely to make its way back into the air quickly.”

▶ Dianne Feinstein: Why I changed my mind about California’s Diablo Canyon nuclear plant – Sacramento Bee |

▶ Meta-morphosis or More Pain? Possible Futures for Facebook’s Parent Company – Christopher Mims, WSJ |

▶ One epigenome-editing injection could cut cholesterol level for years – Michael Le Page, New Scientist |

▶ Arati Prabhakar set to become Biden’s science adviser and his pick to lead science office – Jeffrey Mervis, Science |

▶ A $100 genome? New DNA sequencers could be a ‘game changer’ for biology, medicine – Elizabeth Pennisi, Science | “[For] years, most sequencing has relied on machines from a single company, Illumina. Last week, however, a young company called Ultima Genomics said at a meeting in Orlando, Florida, that with new twists on existing technologies, it could provide human genomes for $100 a pop, one-fifth the going rate. Several other companies also promised faster, cheaper sequencing at the same meeting, Advances in Genome Biology and Technology. This year, key patents protecting Illumina’s sequencing technology will expire, paving the way for more competition, including from a Chinese company, MGI, which last week announced it would begin to sell its machines in the United States this summer. ‘We may be on the brink of the next revolution in sequencing,’ says Beth Shapiro, an evolutionary biologist at the University of California, Santa Cruz.”

▶ We should build Jurassic Park – Matthew Yglesias, Slow Boring |

▶ Farm Robots Will Solve Many of Our Food Worries – Amanda Little, Bberg |

▶ F.D.A. Approves Alopecia Drug That Restores Hair Growth in Many Patients – Gina Kolata, NYT |

▶ FAA requires SpaceX to make environmental adjustments to move forward with its Starship program in Texas – Michael Sheetz, CNBC |

▶ NASA watchdog says the outlook isn’t good for its mega-moon rocket launcher – Rachel Zisk, Fast Company | “The tower is going to be late, over budget, and too heavy. The OIG report concluded that Bechtel’s poor performance caused 70% of the cost overruns and 1.5 years of project delays. The project had already cost NASA $436M by March 2022; it’s expected to cost $960M when all is said and done. The OIG report estimates that delivery won’t be until October 2025 at the earliest, which would delay Artemis IV, the second crewed flight of NASA’s Artemis program to return humans to the lunar surface, to no earlier than 2026. The culprits: underestimating the scope of the project, staff retention issues, and design flaws.”

▶ BioNTech’s second act: can it transform the fight against cancer? – Hannah Kuchler, FT | “While some billionaires use their wealth to buy newspapers or fund extraterrestrial adventures, Şahin and Türeci will use theirs to fuel their ambitious — though still nascent — plans in oncology. They are doubling down on a hope that Şahin admits once sounded like science fiction: to be able to tailor drugs to each patient’s cancer. The company recently took steps in the right direction with two early stage trials showing promising data, one in pancreatic cancer and the other targeting solid tumours including ovarian and testicular cancer. Success would mean a new journey: reimagining the whole pharmaceutical industry.”

Learn more: The 5 Most Future-Optimistic Sci-Fi Shows on Television | What If Google Really Did Just Invent Human-Level AI? | From Web3 to the Space Economy, We Should Avoid Knee-Jerk Skepticism About Emerging Tech

Weekly analysis from AEI’s Economic Policy Studies scholars

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