America's Economic Crossroads

America's inopportune experimentation with bonkers macroeconomic policy threatens to undermine its AI-powered technological future. Aside from a reckless tariff policy, there's also been talk of a third presidential term, price control threats, and attacks on independent agencies—all of which suggest multiple pillars of the successful US economic model face challenges: global trade, constitutional governance, market efficiency, and financial stability. The contrast with the economic renaissance of the 1990s, when sound and certain fiscal and monetary policy complemented technological innovation and entrepreneurial spirit, reveals what's at stake if we continue down this perilous and totally unnecessary path.

The state of play, aside from stock market turmoil: The economics team at megabank JPMorgan now expects the US economy to fall into a recession this year due to the impact of tariffs announced by the Trump administration. Goldman Sachs economists raised their recession probability to 45 percent from 35 percent and lowered their 2025 Q4-to-Q4 GDP growth forecast to 0.5 percent from one percent, adding that if "most of the April 9 tariffs do take effect . . . we expect to change our forecast to a recession." And in a Bloomberg column, Bill Dudley, former New York Fed president, writes that "stagflation is the optimistic scenario. More likely, the US will end up in a full-blown recession accompanied by higher inflation."

Look, technological progress—even when considering something that seems as promising as generative artificial intelligence—doesn't exist in a vacuum. The 1990s provide an instructive parallel. That decade began with recession and pessimism but eventually boomed thanks to a tech revolution driven by America's entrepreneurial prowess that, importantly, Washington decided not to stifle through regulation.

But the 1990s boom wasn't solely about deregulation and technology. Fiscal discipline helped transform deficits into surpluses, allowing lower interest rates. This fiscal-monetary harmony created ideal conditions for investment, anchoring inflation expectations and policy certainty while reducing borrowing costs.

(As an aside, we don't need tariff revenue to get our fiscal house in order. My AEI colleagues offer a plan reducing projected public debt from 166 percent to 85 percent of GDP by 2054 through major, evidence-driven reforms. The proposal would, among other things, a) convert Medicare to premium-support with higher eligibility ages, b) transform Social Security into a means-tested program, c) simplify tax brackets while eliminating deductions, d) introduce a carbon tax, and e) implement capital gains tax at death. The plan requires difficult choices, sure, but promises fiscal stability without abandoning vulnerable populations or throttling growth. (And if we also get a growth boost from AI, so much the better.)

The emerging AI Revolution similarly requires more than technological breakthroughs if it is to arrive ASAP. Without sound monetary policy, fiscal restraint, regulatory predictability, and respect for institutions, America's technological potential faces unnecessary headwinds.

Learn more: When the GOP Supply-Siders Hated Tariffs and Trusted the Stock Market | Is America Passing the Kahn Test? | America's R&D Rethink Threatens Its Innovation Supremacy | America's Electric Future Requires Washington's Attention Today

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