The Next Sparks for the Economy Could Surprise Us

The U.S. economy is slowly reviving, leaving behind with each passing month the worst downturn since the Great Depression. It goes without saying that an expanding economy is better than a contracting one, but the consensus outlook is far from cheery. Instead, it calls for years of muted growth and high unemployment.

It isn't hard to find pessimism that runs much deeper. The European sovereign-debt crisis is stoking fears that the heavily indebted American Empire is slouching toward a Greece-like fiscal calamity. The nation's opinion pages are full of warning that the U.S. may be increasingly caught in what Harvard University historian Niall Ferguson calls the "fatal arithmetic of imperial decline" with a federal deficit at a post-World War II record 9 percent of gross domestic product and a national debt at $13 trillion and climbing.

Taken altogether, from fears of toxic sovereign debts to a euro contagion to a growing federal Leviathan, all the risks appear to be on the downside.

"Black Swan" Revival?

Yet the gloom may be way overdone, as the seeds of economic revival may be sown in some unexpected places. By now you've probably heard of the "Black Swan." The provocative catchphrase comes from a best-selling book by author and investor Nassim Nicholas Taleb. A black swan is essentially an unpredictable outlier event that has a dramatic impact on the economy and society. It gives lie to the elegant quantitative and mathematical models most experts use to predict the future course of the financial markets and economy. It's almost comforting to know that the surprising twists of history can fool even the most highly regarded financial and academic eminences.

Black swans are popularly considered negative events, largely because the fearsome global credit crunch—missed by most mainstream forecasters—made many investors appreciate the phenomenon.

Yet there's nothing intrinsically bad about black swans. The unexpected can be positive. Case in point: Netscape.

The U.S. economy emerged sluggishly out of the recession of the early 1990s. It was a jobless recovery, with little sizzle. But the Silicon Valley startup Netscape—which popularized the Web browser that is now an essential part of everyday life—went public in 1995. The demand for the company's $28-a-share offering was so strong that shares shot up to $75 and closed at $58. The dot-com boom and the Internet Age were born that day—or at least a lot of people suddenly dreamed of creative opportunities and wealth creation.

The Mobile Web's Moment

It's still remarkable to consider just how quickly the Internet economy was established over the next few years. To be sure, plenty of pioneering Web outfits went bust, such as online grocer Webvan, wireless Internet company Metricom, and the online merchant But many companies thrived, including brand-name companies like (AMZN), Google (GOOG), and eBay (EBAY). The economy soared from 1995 to 2000 at a 4-plus percent average annual rate, the unemployment rate reached a 30-year low of 4 percent, and productivity expanded at a 2.5 percent pace, significantly higher than the 1.4 percent rate of the previous two decades.

Game-changing technology breakthroughs were scarce during the decade of the 2000s. Instead, investment money poured into real estate and derivative finance. But a new cycle may be in the offing, signaled by Apple's (AAPL) stock reaching a greater market capitalization than Microsoft (MSFT). Could this be the "Netscape moment" for the mobile Internet market? The iPod, iPhone, and iPad are simply the visible symbols of the rapid embrace of wireless data—video, images, content, and communication—throughout the global economy. The competition is global and pacesetters are here and abroad, including America's Facebook, South Korea's Samsung Electronics (005930:KS), China Unicom (CHU), and Japan's Rakuten (4755:JP).

"The mobile Internet will create more wealth and destroy more wealth than the mainframe computer, the mini-computer, the personal computer, and the Internet, the four previous waves" of technological innovation, says David Darst, managing director and chief investment strategist at Morgan Stanley (MS) Global Wealth Management. "It will affect everything from Costco (COST) to Tesco (TESO), FedEx (FDX) to JPMorgan Chase (JPM)."

Alternative Energy Push

What's more, even as mobile Internet investment gains momentum, another technology may come into its own, thanks to a coming rise in the price of oil. Yes, oil is down recently with growing concerns about global economic growth. Nevertheless, with the global economy barely moving out of recession, it had risen some 30 percent from $67 a barrel in the fall of 2009 to $87 in April. It isn't hard to see oil climbing to some $100 a barrel with synchronous global economic growth. And Charles Maxwell, the dean of Wall Street energy analysts at Weeden & Co., sees even higher oil prices ahead. He predicts that world oil production will peak sometime from 2015 to 2020. Oil will reach at least $150 a barrel around 2015 and it could go to $300 by 2020.

"The biggest boom will be energy efficiency and conservation. That will get bigger and bigger," he says. "Energy technology will be like information technology was for the market over the last 30 years."

A number of oil industry companies will benefit. But so will companies like General Electric (GE). Almost everything the company does has a heavy energy component, such as compressors, train engines, and the like. Says Maxwell: "There will be a need to retrofit the capital infrastructure of the world and the U.S."

To be sure, the potential economic growth engines I've cited here may not be total surprises to everyone. (Perhaps we should call them Navy Blue Swans.) But the fact remains that economy-boosting innovations rarely take the shape we expect.

As Yogi Berra famously quipped, "It's tough to make predictions, especially about the future." Nuclear energy, nanotechnology, and biotechnology never quite lived up to their hype, for instance. Nevertheless, over the coming decade, the combination of the mobile Internet and the push for alternative energy could spark the next wave of creative destruction, economist Joseph Schumpeter's evocative metaphor for the process by which new technologies, new markets, and new organizations supplant the old.

Let's hope so.

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