After all the talk about a “foreign policy election” in 2016, what about the economy? The Federal Reserve might have finally raised interest rates thanks to lower unemployment, but there’s no doubt much of the American public—including not a few supporters of a man called Trump—still feels the effects of the recession. Not to mention global economic risks, ranging from China’s slowing growth to terrorism threats in the Middle East and beyond. Could the economy really tank in 2016? We asked the country’s leading economic thinkers to peer into the (near) future and tell us what to expect in U.S. and global markets this year. What are the biggest opportunities for growth—and the biggest risks? What, if any, is the chance of another recession? And what should the 2016 presidential candidates do about it all? Here’s what the experts had to say.
‘What could be the beginnings of a major global recession’
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Tyler Cowen, professor of economics at George Mason University
I believe China is currently in the range of 3 to 5 percent growth, and headed rapidly to zero. Some people take this to be a radical position, but is it? Is it so uncommon for countries to have recessions every now and then? It’s now China’s turn, due to debt buildup, excess capacity and problems in reforming their state-owned enterprises. Longer run, I think they can expect growth at 4 percent. At most. The big losers here are Brazil, Peru, Singapore and other parts of Asia, as well as Africa. The United States will chug along at 2 percent growth, and mostly ignore what could be the beginnings of a major global recession. We are about the most insulated from this of just about anybody.
‘Slower productivity growth’
Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office
The greatest challenge facing the U.S. is the pace of trend economic growth. During the postwar era, growth in per capita income permitted the standard of living to double in just more than 30 years—one person’s working career. Under the burden of a regulatory explosion, ballooning federal debt, poor business investment in the recovery, higher taxes and other sources of slower productivity growth, doubling the standard of living is now projected to take roughly 70 years.
The biggest threat in 2016 is not a recession—which can’t be ruled out, but is not likely; it is further damage to the American dream. The president will continue “executive action”; we just can’t be sure how much burdensome red tape will result. And there is the real damage that short-termism will rear its ugly head among the 2016 presidential candidates and produce promises of more spending (the Clinton campaign is already over $1 trillion), new entitlements and expensive mandates. That’s not the path to fixing the U.S. growth problem.
‘There’s a real possibility that 2016 will be difficult for most major economies outside the United States.’
Robert Rubin, co-chairman of the Council on Foreign Relations and secretary of the Treasury under Bill Clinton
Key to economic performance looking forward, both in the United States and globally, continues to be what I call secular policy stagnation. The economies of the major industrial democracies—the United States, the eurozone and Japan—all have political systems that are seriously dysfunctional, with varying issues when it comes to fiscal policy, structural reform and public investment. And monetary policy has done pretty much all it can; in fact, I think it may have tried to do too much.
There’s a real possibility that 2016 will be difficult for most major economies outside the United States, including significant uncertainties about China and important emerging market countries. Globally, there is a shortfall of economic demand relative to capacity, whatever the causes. There are eurozone estimates that project somewhat improved growth, but unemployment remains high, debt-to-GDP ratios remain unsound and growth predictions are still low, except for in Spain, where growth remains inadequate given its other problems.
For the United States, these conditions could feed a strong dollar and lessen external demand for American goods and services, dampening growth. Moreover, wage stagnation and income inequality are not only antithetical to our social values but continue to adversely affect growth. These conditions constrain domestic demand; deprive workers of the resources they need to access education, health care and other keys to productivity; and reduce support for growth-promoting policy. (Conversely, growth is essential—though not sufficient—to achieve widespread income increases on an ongoing basis.)
The fundamental question for the economic future of the United States and the other industrial democracies is political: Will elected leaders, primarily legislators, overcome secular policy stagnation and finally move forward on fiscal issues, public investment and structural reform, such as immigration reform and K-12 education in the United States and rigidities in the eurozone and Japan? Such action could make a real contribution in the short term—through the effects of policies themselves and through increased confidence—and is absolutely critical for the longer term.
‘I do not believe most families feel better off.’
Cecilia Rouse, Katzman-Ernst professor of the economics of education and dean of the Woodrow Wilson School of Public and International Affairs
It appears that the U.S. economy will continue its slow but steady climb following the great recession. Unemployment is relatively low, and economic growth outside the United States also improved this past year, which helped the U.S. economy as well. We’re entering the next phase of U.S. monetary policy with the Federal Reserve slowly starting to increase interest rates. This move was so heavily anticipated since the economy has continued to show signs of improvement that it will probably not make a big difference to overall economic growth, but it could generate a bit of headwind.
That does not mean we can lower our guard. Because of modest wage growth, I do not believe most families feel better off. Further, the strikingly low labor-force participation rate, particularly in some demographic groups, persists. Combined, these forces contribute to growing income inequality, which continues to be a serious threat to economic growth in both the short and longer terms. U.S. policymakers, including the presidential candidates, will need to take seriously the fact that while a very small percentage of the population is benefiting tremendously from the recovery, most are not, and that addressing inequality will take creativity and a willingness to make hard decisions.
On the international front, the U.S. economy may be affected by the political instability in the Middle East, including the migration crisis facing Europe and the world. This mass movement of people is affecting some key global markets that could in turn affect the U.S. economy in unexpected ways. And while I would not venture to guess the likelihood of another recession, there are certainly risks in the system, such as slowing economic growth in China and the high levels of debt in some emerging economies.
Read more: http://www.politico.com/magazine/story/2016/01/economist-forecast-2016-213499#ixzz4882a6p9O
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