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1/11/16

US Economy: Could the American economy tank in 2016? – by Politico

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.

Tyler Cowen, professor of economics at George Mason University: "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."

Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office:'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."

Robert Rubin, co-chairman of the Council on Foreign Relations and secretary of the Treasury under Bill Clinton :"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."

Cecilia Rouse, Katzman-Ernst professor of the economics of education and dean of the Woodrow Wilson School of Public and International Affairs:"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."

Robert Reich, Chancellor’s professor of public policy at the University of California at Berkeley and former U.S. secretary of labor:"Economic forecasters exist to make astrologers look good, but I’ll hazard a guess: I expect the U.S. economy to sputter in 2016. That’s because the economy faces a deep structural problem: not enough demand for all the goods and services it’s capable of producing.

American consumers account for almost 70 percent of economic activity, but they won’t have enough purchasing power in 2016 to keep the economy going on more than two cylinders. Consider:

The median wage is 4 percent below what it was in 2000, adjusted for inflation. The median wage of young people, even those with college degrees, is also dropping, adjusted for inflation. That means a continued slowdown in the rate of family formation—more young people living at home and deferring marriage and children.

Business investment won’t save the day, either. Without enough customers, businesses are not going to step up investment. Add in uncertainties about the future—including who will become president, the makeup of the next Congress and even the possibilities of domestic terrorism—and I wouldn’t be surprised if business investment declined in 2016.

Diane Coyle, professor of economics at the University of Manchester:"What would it take to restore market capitalism to its function as a means of creating prosperity for all? A tough approach to antitrust, to enable new businesses to grow, rather than being taken over by incumbents. Also tougher regulation of the finance sector, which uses its lobbying power to tilt the rules ever further in favor of itself. Meaningful taxation of the ultra-wealthy, who need to have a stake in their society. A crackdown internationally on multinational tax avoidance. Modest minimum wage increases and an acceptance of the need for some improvements in the terms of work. Infrastructure investment, as this is an important asset for everyone but especially people on low incomes. It seems pretty unlikely this broad an agenda will gain political traction, in any country.
Maybe this is too pessimistic and 2016 will turn out to be a steady and unexciting year in terms of economic growth. But the big economic risk? It’s the politics, stupid.

At the same time, the labor participation rate—the percentage of Americans of working age who have jobs—remains near a 40-year low


Read many more predictions: Could the American economy tank in 2016? – POLITICO

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