Will America's startup boom transform the economy? : Planet Money

The United States is currently experiencing a prolonged period of startup growth, a phenomenon first observed in 2020 amidst the COVID-19 pandemic. Economist John Haltiwanger, an expert on new business creation in the U.S., found that Americans were creating businesses at a record rate, a trend typically associated with job creation, innovation, and productivity growth. Prior to 2020, Haltiwanger’s research had focused on signs of declining business dynamism and entrepreneurship in the U.S.

The startup boom, initially viewed with skepticism, has persisted beyond the pandemic and into 2021. Haltiwanger attributes this boom to two primary factors. The first is a significant population shift due to remote and hybrid work, leading to increased demand for businesses in areas where office workers now reside. This has resulted in growth in sectors like food and accommodations, particularly in suburban areas surrounding major cities.

The second factor is the rise of tech startups, with artificial intelligence (AI) startups being particularly prominent. Haltiwanger believes that the current tech wave is driven by AI and expects it to have a significant impact on the economy. The last significant uptick in productivity growth in the U.S. was during the dot-com boom of the 1990s, which followed a surge in new startups. Haltiwanger sees the current startup boom as a leading indicator of potential productivity growth.

Despite his initial optimism, Haltiwanger admits that, three years later, we have not yet seen the promised productivity growth. He cites the “J-curve” theory, which suggests that productivity may dip before it increases as businesses invest in and adapt to new technologies. Nonetheless, he remains hopeful that the AI startups will eventually lead to a long-awaited boost in productivity growth.

The ongoing startup boom is evident not only in single-person businesses but also in businesses likely to grow and create jobs. It is also observed in traditionally underrepresented minority communities. However, the ultimate impact of this boom on the economy and its potential to revolutionize business processes and productivity remains uncertain. Economists continue to debate the extent to which AI will drive productivity growth in the foreseeable future. As the data continues to roll in, Haltiwanger will remain a key observer of the U.S. startup landscape.

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