Thursday, November 28, 2013

One Opinion Of The Economy Next Year--Do You Agree?

Jared Bernstein: Economy Will Continue to Struggle Into New Year

Tuesday, 26 Nov 2013 12:47 PM
By Michael Kling
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Don't expect the economy to gain steam right way, cautions economist Jared Bernstein.

"First off, mark me down as pretty skeptical the pace of U.S. growth and jobs is poised to accelerate much," writes Bernstein in an article for the Huffington Post. 

When predictions of an economic turnaround are regularly postponed to the next corner, we need to look for structural explanations, he says. Bernstein cites several of those explanations and reasons for his dour view.
 

Less growth is reaching the middle class and lower class, constraining consumer spending, the largest part of the American economy. And unlike during the housing-bubble years, there's no cheap credit to offset this drag.

The increase in corporate profits has failed to impact unemployment or energize growth.

"Uneven consumer spending along with fiscal drag-austerity and political dysfunction have contributed to a weaker investment climate, not just in the U.S. but in most economies," he points out.

"Investors just don't see enough domestic projects with high enough prospective returns to get them back in the biz of investing in structures, equipment, software, at least not at rates that would give us the growth pop we need."

Inflation has been falling. Lower real rates would prompt more investment and hiring, but the Fed seems unlikely to seek higher inflation.

The sizable trade deficit is also a problem. The lack of a competitiveness policy lets the U.S. to be taken of advantage of by countries running surpluses, often by managing their currencies.

"Fears of 'hysteresis' have also surfaced — the fear that long-term unemployment, the slog itself, and just the damage of all the austere fiscal policy is itself lowering our potential growth rates," he says.

Next year will see less fiscal drag than this year, barring any political breakdowns like failure to reach a budget agreement, he predicts. Budget cuts is reducing economic growth by about 1.5 percentage points this year and will cut will cut 0.5 a point off next year's.

Even though sequester will continue to implement its "mindless cuts," most of those cuts have already been applied, he says.

"But don't mistake less fiscal headwinds for tailwinds."

Economists have consistently predicted that growth will increase, only to postpone those forecasts when growth failed to materialize, agrees The Washington Post. 

Economic crisis in the eurozone, large cuts in government spending in the U.S., and political standoffs, and slowing growth in China have all slowed the recovery.

"Just because a pickup looks like it is right around the corner doesn't mean it will actually arrive," says Washington Post columnist Neil Irwin.



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