See The Obama-Trump Economic Boom: The current expansion may soon be America’s longest, and neither inflation nor tariffs are likely to stop it
by Alan S. Blinder. He is a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve. Excerpts:
"A common answer in the modern era is that the Federal Reserve clamps
down to fight inflation. But today inflation remains quiescent despite
extremely low unemployment. That the Fed didn’t raise interest rates in
January, even with the federal-funds rate barely above inflation,
suggests that Jerome Powell may be an even more dovish Fed chair than
Janet Yellen. It sure doesn’t look as if an overzealous Fed will squelch
Another common expansion killer, though not lately, is a spike
in the price of oil. Predicting the price of oil is a fool’s errand, and
I won’t try. But a jump to, say, $90 or $100 a barrel doesn’t look
likely any time soon."
Lots of people are fretting about a full-scale trade war with China.
That remains possible—and a threat to the world trade system. But would
it derail the U.S. expansion? Not unless it’s a whopper. Exports to
China are only about 1% of U.S. gross domestic product. Even if they
fell by half—well, you can do the math. America’s total exports to all
countries are vastly larger. But lately, our bellicose president doesn’t
sound inclined to declare trade war on Canada. Let’s hope it stays that
According to legend, stock-market crashes often end booms, but
that’s an exaggeration. A crash may have to coincide with some other
financial calamity, as in the banking, bond and mortgage disasters of
2008-09. In contrast, the U.S. economy sailed right through the
megacrash of 1987. The current expansion has already survived a market
“correction” in December without much apparent damage. So while I never
predict stock prices, a market crash ranks low on my expansion worry
Last but certainly not least, expansions are sometimes killed
by sudden drops in either consumer or business confidence—or rather by
the declines in spending that such drops engender. Might that happen in
the next few months? I suppose so, but recent economic data don’t point
in that direction.
Recent political “data” are a different matter. It is certainly
possible that the U.S. will find itself in a full-fledged
constitutional crisis in the coming months, precipitated by, say, the
“national emergency” over immigration. What then? If business managers
and market traders behave like Mr. Trump’s base, they’ll shrug it off:
Constitution, shmonstitution. But if threats to democracy shake
confidence, look out.
A low probability, you say? I agree. My bet is that the current expansion will sail through June, setting a new record."
See also You Never Know When a Recession Will Sneak Up on You
by Austan Goolsbee. He a professor of economics at the University of Chicago’s Booth School of Business and was an adviser to President Barack Obama. Goolsbee seems to think a recession is more likely than Blinder and that an unforseen event that hurts confidence is more likely. Excerpts:
"recessions don’t come only from large, foreseeable events. Modest, unpredictable incidents can cause economic downturns if they lead businesses or consumers to freak out."
Seemingly small events can cause enormous problems. Think back to 2001 and the last recession
of a “normal” size. (The recession
that started in December 2007 was, by far, the deepest and longest
since the Great Depression — about as far from normal as a recession can
The 2001 recession developed
when the internet bubble popped, or at least that’s how we tend to
remember it. But go back and check the numbers
The internet accounted for, at most, about 2 percent of the economy
then. If we use the logic we’ve been applying to trade wars and
government shutdowns, it would seem that popping the internet bubble
shouldn’t have been enough to cause a recession. But it did.
reason it did was that the pop freaked out people outside just the
internet sector. Consumer confidence plunged, and businesses stopped
investing. The recession spread far beyond its origin.
this sense, virtually every recession in the last 40 years coincided
with a signal of fear, like a significant drop in consumer confidence.
Sometimes confidence fell and didn’t spiral into recession, but all recessions
have started with a confidence spiral."
"Another government shutdown could spiral into something far more
damaging than the small decline in workers’ share of the economy that
the simple math suggests. An escalating trade war with China could
ignite a recession, even if the numbers show that trade isn’t a large
share of the United States economy. These events just need to spook
consumers or businesses into putting off spending, and then more dire
consequences can start to snowball."
"If something scares people enough, it can start a recession, and you probably won’t know until it’s too late.
That’s because recessions are hard to recognize
at the start. Looking back, for example, we know that a recession
officially began in April 2001, yet scarcely anyone understood that
then. In June 2001, only 7 percent of economists in the monthly Blue
Chip survey believed a recession was underway. In the months before that
2001 recession began, only 16 percent of economists expected that a
recession would start within the next year. Now, 25 percent of
economists in a Wall Street Journal survey
say they expect a recession within the next year, and anxiety seems to be growing."
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