Economics professor Alan Blinder ’67 presented a public lecture on the economic downturn and potential recovery on Monday night titled “Storm Clouds Rising: Are There Ways Out.”
“I was thinking I would just call this lecture: ‘The Mess,’ ” Blinder joked, underscoring the somewhat pessimistic tone of the lecture, which was part of the Wilson School’s Economic Recovery Series.
“Yes, there are ways out,” Blinder said. “But, as you’ll see, the bad news is we’re very unlikely to take them.”
Blinder discussed four of the primary “messes” affecting economic recovery and growth: the current U.S. economy, the U.S. budget, U.S. monetary policy and the European sovereign debt crisis. “Europe seems to get worse, if not every day, every other day,” he noted of the last crisis.
Blinder began by addressing current U.S. economic growth, which, he explained, has fallen far short of the recovery expectations most people entertained at the beginning of the year.
“I was pretty much with the consensus,” he said, noting that most economists 10 months ago were predicting real GDP growth of 3.5 percent for the year, though that expectation has been revised today to a dramatically lower 1.5–1.75 percent real annual growth rate.
“To call it subpar is charitable. It’s terrible,” Blinder noted. “With these growth rates, expect unemployment to be stable or rise.” He further added that 2012 GDP growth rates are currently being predicted in the range of 2 to 3 percent. Growth of at least 2.5 percent is generally needed to maintain a stable unemployment rate as population grows, he explained.
“You hear a lot that the American consumer is tapped out,” Blinder said, noting claims of stagnating wages, high unemployment rates and some suggestions that consumer confidence is waning.
Yet Blinder then offered a different picture, pointing to statistics that show real growth in consumer spending has increased 1.7 percent in the past year, while incomes increased by 0 percent.
“They don’t present a picture of the consumer pulling in the oars in fear of capsizing, but rather a consumer rowing furiously down the stream — but there’s no water in the stream,” Blinder explained.
Instead, Blinder said he placed the blame for recent anemic growth on other factors, including a stagnant housing market, decreases in government spending and the impact of the European economic crisis.
“These stories that businesses are lacking confidence like consumers, afraid of the future, traumatized by ObamaCare, overregulated, over-taxed ... are belied by the fact that this year equipment and software investment has grown at a 10.7 annualized rate so far,” Blinder said. “If the whole economy had grown at [this rate], the lecture series on economic recovery would be over by now.”
With the fiscal year 2011 budget deficit ballooning to 8.6 percent of GDP, Blinder explained, the country needs to bring this number down if the country is to maintain a 60-percent debt-to-GDP ratio.
“You hear a lot about a balanced budget being 0 percent but that’s a very abnormal figure,” he said.
“Three percent has actually been the historical norm for the United States in the post-war period until Ronald Reagan,” he added, explaining the internal logic of maintaining a 3-percent deficit, given that with normal GDP growth, that level would stabilize the overall U.S. debt ratio.
Blinder expressed little optimism for the so-called Congressional “supercommittee” to come up with such a deal to reduce the deficit by their self-imposed deadline of Nov. 24.
“Unfortunately, we have a completely dysfunctional Congress ... Alexander Hamilton would turn in his grave,” Blinder added, referring to the debate in August over whether to inflict a self-imposed default on U.S. debt.
“It was beyond absurd,” he said. “This did enormous damage to confidence.”
“There’s a critical difference between what we could/should do in the short term and what we could/should do in the long term,” Blinder explained, noting his ideal fiscal policy remedy of $500 billion in short-term spending increases to spur job growth paired with a $4 trillion long-term debt reduction.
The real problems lie in long-term financing of the debt, he said.
Blinder finished the discussion by addressing the ongoing debt crisis that has spread from Greece to Italy and other European countries and the uncertain consequences that this crisis could have on the United States and world economic recovery.
“This is not easy,” he said of the prospects of a quick solution to the crisis in Europe. “There’s a lot of work to be done.”
Blinder’s lecture attracted a large audience, crowding Dodds Auditorium.
dailyprincetonian.com
“I was thinking I would just call this lecture: ‘The Mess,’ ” Blinder joked, underscoring the somewhat pessimistic tone of the lecture, which was part of the Wilson School’s Economic Recovery Series.
“Yes, there are ways out,” Blinder said. “But, as you’ll see, the bad news is we’re very unlikely to take them.”
Blinder discussed four of the primary “messes” affecting economic recovery and growth: the current U.S. economy, the U.S. budget, U.S. monetary policy and the European sovereign debt crisis. “Europe seems to get worse, if not every day, every other day,” he noted of the last crisis.
Blinder began by addressing current U.S. economic growth, which, he explained, has fallen far short of the recovery expectations most people entertained at the beginning of the year.
“I was pretty much with the consensus,” he said, noting that most economists 10 months ago were predicting real GDP growth of 3.5 percent for the year, though that expectation has been revised today to a dramatically lower 1.5–1.75 percent real annual growth rate.
“To call it subpar is charitable. It’s terrible,” Blinder noted. “With these growth rates, expect unemployment to be stable or rise.” He further added that 2012 GDP growth rates are currently being predicted in the range of 2 to 3 percent. Growth of at least 2.5 percent is generally needed to maintain a stable unemployment rate as population grows, he explained.
“You hear a lot that the American consumer is tapped out,” Blinder said, noting claims of stagnating wages, high unemployment rates and some suggestions that consumer confidence is waning.
Yet Blinder then offered a different picture, pointing to statistics that show real growth in consumer spending has increased 1.7 percent in the past year, while incomes increased by 0 percent.
“They don’t present a picture of the consumer pulling in the oars in fear of capsizing, but rather a consumer rowing furiously down the stream — but there’s no water in the stream,” Blinder explained.
Instead, Blinder said he placed the blame for recent anemic growth on other factors, including a stagnant housing market, decreases in government spending and the impact of the European economic crisis.
“These stories that businesses are lacking confidence like consumers, afraid of the future, traumatized by ObamaCare, overregulated, over-taxed ... are belied by the fact that this year equipment and software investment has grown at a 10.7 annualized rate so far,” Blinder said. “If the whole economy had grown at [this rate], the lecture series on economic recovery would be over by now.”
With the fiscal year 2011 budget deficit ballooning to 8.6 percent of GDP, Blinder explained, the country needs to bring this number down if the country is to maintain a 60-percent debt-to-GDP ratio.
“You hear a lot about a balanced budget being 0 percent but that’s a very abnormal figure,” he said.
“Three percent has actually been the historical norm for the United States in the post-war period until Ronald Reagan,” he added, explaining the internal logic of maintaining a 3-percent deficit, given that with normal GDP growth, that level would stabilize the overall U.S. debt ratio.
Blinder expressed little optimism for the so-called Congressional “supercommittee” to come up with such a deal to reduce the deficit by their self-imposed deadline of Nov. 24.
“Unfortunately, we have a completely dysfunctional Congress ... Alexander Hamilton would turn in his grave,” Blinder added, referring to the debate in August over whether to inflict a self-imposed default on U.S. debt.
“It was beyond absurd,” he said. “This did enormous damage to confidence.”
“There’s a critical difference between what we could/should do in the short term and what we could/should do in the long term,” Blinder explained, noting his ideal fiscal policy remedy of $500 billion in short-term spending increases to spur job growth paired with a $4 trillion long-term debt reduction.
The real problems lie in long-term financing of the debt, he said.
Blinder finished the discussion by addressing the ongoing debt crisis that has spread from Greece to Italy and other European countries and the uncertain consequences that this crisis could have on the United States and world economic recovery.
“This is not easy,” he said of the prospects of a quick solution to the crisis in Europe. “There’s a lot of work to be done.”
Blinder’s lecture attracted a large audience, crowding Dodds Auditorium.
dailyprincetonian.com
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