Zuckmentum!: Why the Silicon Valley App Boom Could Sink Romney

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The surprising link between the future GOP presidential nominee and the upcoming Facebook initial public offering

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Reuters

Mitt Romney and his fellow Republicans are gleefully pounding President Barack Obama for the weaker-than-expected employment report released on May 4. Growth seems to be weakening and Romney is positioning himself as the business-minded economy savior for the country.

At the same time, the Facebook IPO, anticipated to value the company at more than $75 billion, is a tangible sign of the vast amounts of wealth and income being generated by the communications boom and the so-called App Economy. Smartphones, broadband wireless, social media, apps -- all are combining to provide a potent force for economic growth.

So the question is: Should Romney be worried about an "App Surprise" -- a sudden acceleration of growth and job creation fueled by the smartphone/communications boom?

That might seem unreasonable given the other drags on the economy. Yet Romney and his advisers would be wise to remember the events of the 1996 election campaign.

IS IT '96 AGAIN?

Running against President Bill Clinton, Republican challenger Senator Bob Dole repeatedly called the economy "stagnant" and "weak", and promised a better economic policy. As late as May 1996, these attacks seemed right on target. In fact, the employment report released May 3, 1996 -- almost 16 years to the day before the recent disappointing BLS report  -- showed virtually no gain in jobs in the previous month: 2,000 new workers. The badly lagging Dole campaign had new hope.

And it was quickly dashed. The apparent sputtering of the job market in early 1996 was really just the sound of the New Economy revving up for takeoff. Employment growth for April 1996 was revised from up 2,000 to up 160,000. Subsequent repeated upward revisions of the economic data turned the second quarter of 1996 from an apparent bust into a boom, with a 7.1% GDP growth rate and almost 800,000 jobs created.

In fact, in retrospect, the spring of 1996 marked the beginning of the tech/Internet boom of the 1990s, an explosion of growth that doomed the Dole candidacy.

INNOVATION CASTS A VOTE

Now there are some signs of history repeating itself. The smartphone/communications boom, already strong , may be at an inflection point where its economic impact picks up speed. Suddenly we have a society where roughly half of adults own smartphones, where 4G broadband wireless is becoming ubiquitous, where virtually every large company is building or commissioning apps. The Facebook IPO will only accelerate the trend.

Simultaneously, and perhaps not coincidentally, total help-wanted ads are rising at a 34% annual rate since December. That's according to the latest Help-Wanted Online release from The Conference Board.

This apparent growth in labor demand is not yet fully reflected in the official economic statistics. If the App Economy is really accelerating, we can expect the seemingly weak GDP and job data to be revised upward, just as it was in 1996. As a tech boom picks up speed, much of the job growth comes from smaller companies who are missed in the early estimates of GDP and jobs.

In the end, we may see a vivid illustration of the principle that innovation creates growth and jobs. And the beneficiary of the 2012 App Surprise may be the incumbent Barack Obama, just as the beneficiary of the New Economy in 1996 was the incumbent Bill Clinton.

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Michael Mandel is chief economic strategist at the Progressive Policy Institute.

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