Speaker predicts economic stagnation
Lucas Masin-Moyer | Wednesday, March 16, 2016
The man once named Washington’s funniest celebrity, Robert P. Gwinn Professor of Economics at the University of Chicago Austan Goolsbee, spoke Tuesday evening in the Eck Center on the future of the American economy.
“It is usually the case that when you have a deep downturn, it is followed by a rapid recovery,” Goolsbee said. “We didn’t have this ‘V-shaped’ recovery after the worst economic downturn since we’ve had GDP data, it never came back.”
These groups believe, according to Goolsbee, “we go through a recession, a financial crisis, and once the deleveraging finishes then we will start growing.”
Goolsbee, who formerly served as chairman of the Council of Economic Advisors to President Obama, said proponents of this idea rely on flawed logic.
“The FED and the private sector have been wrong year after year because they have embodied in their mind an implicit return to normal,” he said. “In their mind what is normal is defined as what it was in 2006.”
Goolsbee said the economy has undergone fundamental changes which disprove this theory.
“All the V-shaped recoveries in U.S. history have come when the economy can return right back to what it was doing before the recession,” he said, “This time we had a [housing] bubble, and the bubble popped, and we can’t return to that.”
A transformation of the U.S. economy from that which existed before the 2008 financial crisis, according to Goolsbee, is necessary for a full recovery.
“Transforming from what we were doing to something new, and that is never a fast process, and it is never an easy process,” he said. “ … It’s happening, but it’s happening slowly, and that is why we never had a V-shaped recovery.”
There are four major factors that many economists believe could help save the American economy: consumer spending, other countries, oil prices and Washington. All these fail short according to Goolsbee. He said other countries cannot help the recovery, and lower oil prices won’t help the economy because of low global demand for goods and oil and the lessened importance of oil in the economy due to energy efficiency.
As for Washington, Goolsbee said if the government did anything, it might do harm rather than good.
“Probably they would do nothing,” he said. “There is a small probability that they do something way worse like we like default on the U.S. debt for no reason.”
Despite the forecast of many economists that the U.S. economy is entering a period of stagnation, Goolsbee said there is reason to be hopeful.
“We start from a position of strength and not of weakness,” he said. “ … The cost of capital is favorable, we have a productive workforce, we have a strong rule of law, and it is consistently shown in survey … the number one place to invest is the United States.
“We remain the most entrepreneurially-oriented, innovative culture on earth, if you look at data. … The ability of U.S. businesses to adopt to new technology … we have proven better at that than anyone else.”