Federal Reserve Chairman Kevin Warsh told an audience at the Jackson Hole Economic Symposium in Wyoming on Friday, August 28, that the economic assumptions guiding U.S. policy for the last two decades no longer hold. “Well, times sure have changed. We’ve come to a hinge point in history,” Warsh said, dismissing the post-financial-crisis era of secular stagnation, a global savings glut, and the belief that America had run out of things worth investing in.
Warsh repeated a condensed version of the message on Monday at the opening session of the G20 in Asheville, North Carolina, where he appeared alongside Treasury Secretary Scott Bessent.
Buried in a footnote to his Jackson Hole remarks, Warsh credited the phrase “hinge point” to George Shultz, the late Reagan-era Secretary of State and Treasury Secretary who is described by people close to Warsh as a mentor. Shultz laid out the concept in his 2020 book “A Hinge of History,” co-written with James Timbie, arguing the world had reached a turning point as significant as the years right after World War II — one where fast-changing technology and demographics were outrunning institutions built for a different era. Shultz put it simply: “The near future is not going to be like the near past.”
From Scarcity to Abundance
For most of the past twenty years, U.S. economic policy operated on the assumption that demand was scarce and investment opportunities were hard to find. That assumption justified near-zero interest rates, government bond-buying, and endless worry about creating enough jobs. Warsh argues that world is ending. Business capital spending is now growing at roughly nine percent — the fastest pace since 2021, and this time without a shutdown-driven economy to bounce back from.
Money is pouring into artificial intelligence, data centers, energy, and infrastructure. Warsh suggests AI could become something close to a new factor of production, capable of lifting productivity growth well beyond the Fed’s current estimate of two percent long-term potential — a number he suggests may already be obsolete.
Why Job Counts No Longer Tell the Story
Labor-force growth has slowed sharply, which changes what counts as good policy. When the labor force was expanding fast and unemployment was high, a policy that “created 500,000 jobs” looked better than one creating 100,000. In an economy near full employment with a slow-growing workforce, that comparison stops meaning much. If one approach produces the same output using a million more workers, and another produces it with better machines, software, and AI and barely any new hires, the second approach wins economically — even though it “creates” fewer jobs.
That reasoning points toward a specific policy agenda: immigration rules tight enough, and visa fees high enough, that employers can’t keep substituting cheap imported labor for investment in machinery and productivity. It means stepping back from treating maximum college enrollment as an economic goal, expanding apprenticeships and vocational training instead, winding down the federal student loan program, and retiring the use of student visas and post-graduation work programs as a backdoor labor pipeline once the economic rationale for it disappears.
Energy, Spending, and the Case for a Smaller Government Payroll
The new framework also calls for policies that guarantee abundant energy, critical minerals, and domestic manufacturing capacity, with permitting and tax rules judged by whether they encourage investment. On the fiscal side, deficit spending and rock-bottom interest rates made sense when capital and labor were sitting idle. In a world where investment opportunities are abundant and labor is scarce, government borrowing instead competes with private investment for capital, and easy money risks stoking inflation. Shrinking the federal payroll — something President Trump has already been doing — frees up workers for more productive private-sector jobs.
If policymakers get this right, the argument goes, higher productivity could let fewer workers support more retirees without punishing tax hikes, easing pressure on Social Security. Better job prospects and wages for younger workers could encourage earlier family formation, echoing the dynamics behind the postwar Baby Boom. And scarce labor tends to push wages up and inequality down, which could cool the appeal of socialist politics gaining ground with younger voters in places like New York.
A New Vocabulary for Economic Success
Warsh argues economists also need better tools for measuring the supply side of the economy, since current models were built during the Great Depression to track shortfalls in demand — not scarcity of labor or abundance of investment. Instead of asking how many jobs a policy creates, the better question is how much output it produces relative to how much scarce labor it consumes. That means paying more attention to GDP per capita, output per worker, productivity, real wages, and capital formation, and less to headline GDP and payroll counts.
Shultz’s original framework treated a
