The Biden economy finished with a remarkable sprint!

By the summer of 2023 the economy was at full employment, yet over the next six quarters GDP growth has averaged 2.9%.

That confounds the conventional wisdom among economists at the Federal Reserve and elsewhere who peg potential long-term growth rate at 1.8%.

Demand-Side Stimulus

Generous pandemic relief permitted households to pad their savings, and that boosted spending when shutdowns ended. President Joe Biden followed with aggressive new support for social programs, infrastructure renewal and industrial policies for semiconductors, green industries and electric vehicles.

Those increased the federal deficit from 4.6% of GDP in 2019 to 6.6%. President Donald Trump can’t similarly boost the deficit without the bond vigilantes balking at absorbing new U.S. treasuries at even a faster pace.

Since September when the Fed started cutting short rates, 10-year treasuries rate has risen about 1.1%, and primary dealers are increasingly challenged to place all the new bonds the Treasury is issuing.

Supply-Side Gains

Analysts point to accelerating productivity growth to explain the recent surge in GDP growth.

Many workers used the pandemic shutdown and federal aid to retrain, relocate or at least refocus to switch industries. As the economy reopened, the workforce was better aligned, and remote and hybrid work has been a boon to productivity.

Immigrants’ Surprise Contribution

After the pandemic shutdowns, employers complained a lot about labor shortages, but they were running down a surge of Americans made jobless by the shutdowns—in April 2020, unemployment peaked at 14.8% and the share of adults working bottomed at 51.2%.

Many workers balked at returning to lower paying jobs in the services and aspects of manufacturing and construction that have displayed turbulence in favor of better paying, more stable employment at better run firms or in places like new data centers that support Artificial Intelligence, the green industries that create the electrons it consumes and trades.

The labor market effectively reached full employment by the summer of 2023, but over the next 15 months, businesses added 190,000 jobs a month.

Population growth and regular legal immigration could only support 80,000 a month and irregular immigrants filled the void, especially in agriculture, food processing, construction, hospitality and daycare and domestic services.

Mass deportations would tank the economy. If Mr. Trump could limit his impulse to booting criminals and those under existing deportation orders and worked with congress to add visas for another 100,000 new immigrant workers each month, the growth boom could continue.

Growth Food

Unimpeded, AI could annually add $1 trillion in new capital spending.

That’s Popeye’s Spinach for an aging recovery, because successful capital spending boosts both aggregate demand for goods and services and aggregate supply by lifting labor productivity.

Specialized agents are: replacing customer representatives and managers at call centers, artists and writers in media and advertising and copyeditors in wealth management and financial services; managing inventories and supply chains; accelerating the development of new drugs and new materials by examining the structures of diseases and desired compounds to more rapidly identify formulas that medical researchers and engineers can test; boosting the potential for fully autonomous robotics to replace factory and warehouse workers, longshoremen and truck drivers.

Agents can increasingly handle the more mundane aspects of staff supervision like data sharing, allocating assignments, monitoring performance, sales forecasting and dynamic pricing to permit managers to focus less overseeing processes and more on leading people. This is permitting large businesses like Google and Citigroup to reduce layers in organizational structures, as managers handle larger spans of control.

Overall, AI could raise productivity growth from 0.8 to 1.5 percentage points a year. That rivals the transformational gains from the transcontinental railroads, mechanization of agriculture and interstate highway system.

Fully exploiting these opportunities will require retraining displaced workers and reconfiguring high schools to prepare graduates for paying apprenticeships or directly assuming roles, for example, in shipbuilding and green energy, where skilled labor is not growing as rapidly as demand and into managing AI—programing and maintaining robots and software in factories, warehouses and elsewhere.

Beyond renewing the 2017 Tax Cut and Jobs Act, instead of cutting taxes Mr. Trump should focus on redirecting resources toward apprenticeships and vocational training.

Spending at universities is running out of control, often with federal money and disappointing results. Funding to enable more apprenticeships and retraining should come from shrinking their resources and enrollments.

The Congressional Budget Office’s base case forecast has the federal debt held by the public reaching 116% in 2034 but increasing productivity growth by just one percentage point and it stays more manageable at its current level of about 100%.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.