The U.S. economy is still recovering from the financial crisis, but GDP expansion remains at historically low levels. A panel of financial experts addresses how the next U.S. president can ignite economic growth.
Powerhouse economists convened to debate the future of the U.S. economy at a Reuters Breakingviews event: How the Next President Can Fire Up Economic Growth. The outcome of their verbal gymnastics: data and trends are selectively manipulated to paint the candidate-of-choice’s perspective — and the real facts get blurred somewhere in the middle.
The most sobering outlook came from former Federal Reserve Governor and current Fellow of the Hoover Institution at Stanford University Kevin Warsh when he cautioned we’re on the cusp of another economic recession if fundamental changes are not embraced and activated. In his words, “this is an opportunity we ought not squander.”
The panel, comprising Alan Krueger, Bendheim professor of Economics at Princeton and former Chairman of the Council on Economic Advisers; Stephanie Kelton, professor of Economics at University of Missouri-Kansas City and Economic Adviser to the Bernie 2016 presidential campaign; David Malpass, president of Encima Global and former senior economic official in the Reagan and Bush Administrations; and Mr. Warsh was led by Rob Cox, editor of Reuters Breakingviews, and introduced by Sir Harold Evans, Reuters editor-at-large.
Views on banking regulation were fairly black and white.
Krueger, supporting the Clinton camp, justified the important role Dodd-Frank played in stabilizing the financial system earlier this decade, however received criticism that the Act has contributed to today’s more aggressive centralized banking environment (and its “secular stagnation” given banks’ pseudo joint venture with the government), while Warsh called for radical reform with a more competitive banking system comprising more small banks making small business loans.
As Warsh explained, “If you’re based here in NY and you’re connected to the financial infrastructure that is favored by the government, this is the perfect economy. Interest rates are staying incredibly low, the government backup of banks is firmer than ever.”
“However, if you’re like 52% of our fellow Americans, who have stocks and a portfolio and a 401K plan … the forecasting by economists has been abysmally poor, their expectations of what this economy can do have been chronically missed.”
The next president and his/her advisers will have a powerful hand in the future role of banking and its impact on the economy.
International trade & globalization
International trade is tricky when talking about igniting the U.S. economy. On the surface it is seen as a threat to domestic employment. However, globalization is essential to growth and has both national winners and losers.
“The economics of trade is pretty clear. The size of the pie is expanding for both sides … yet not everyone gains. We need to do more to help those who are dislocated as a result of globalization and free trade agreements,” said Krueger.
He also suggested that the impact of trade on the U.S. economy can be exaggerated. For instance, it is far less important than domestic developments and domestic innovations, which also raise productivity and can cause disruption and create those who gain and those who don’t.
Igniting the U.S. economy
A significant investment in public-and-private infrastructure was echoed as a sure way to boost the economy and get more Americans working while helping to stabilize ailing bridges, roads and systems. However, as Warsh reminded, “infrastructure isn’t stimulus” and we need to fundamentally change how we deploy these investments.
Malpass, a staunch Trump advocate, called for job growth at a rate much faster than what we currently have and labor force participation at a much higher rate.
Kelton pointed out that the U.S. economy has evolved from agriculture to manufacturing and is now a service economy. The days for nostalgia over traditional blue collar jobs are gone; our economy has transformed and so must the expectations for growth and stability.
The economic growth trifecta
The trifecta for growth centers around putting more people to work, increasing the productivity of the hours worked and creating a robust and competitive banking environment.
View the full video recording of the panel ‘Prosperity for all.’