I think the biggest risk to the American
economy is Trump in the White House, an
inexperienced crew at Treasury and a
willingness for the White House to mess
with important American economic
institutions.
It's been now quite some time since the 2008 recession. So the U.S. economy now has been growing for 10/11
years. It's a very long expansion. We've
seen recently if you just look at the
popular press a bubble, I would say, in
discussion about recessions. Everyone
wants to talk about it. Is there one just
around the corner? The fact that the
expansion has lasted so long has no
predictive power whatsoever for whether
a recession will start tomorrow.
So recessions don't die of old age.
They're murdered. Through much of our
history, particularly we saw this in
1980/81. Federal Reserve that will try and
choke off an expansion and maybe do so a
little too vigorously. I'm of the view
that the Fed seems to understand how
difficult this act is and they're being
very very cautious about things. So I'm
not so worried about the Fed. There are
sometimes external shocks. Things like a
sharp rise in oil prices. Productivity
slow down. Of course any of those things
could happen. But those things are no
more likely in 2019 and they were in
2018 or 2017 or 2016 or than they will be in 2020.
They're an ever-present risk.
So all of that makes me something of an
optimist. Now of course the other thing
you got to think about is we're in a
particular historic moment. And it's hard
not to think about the state of our
politics and whether we have the A-Team
in the White House right now. And I'm not
someone who sleeps easy at night.
Believing that if something went wrong
the White House would figure out how to
make it right. I'm very worried that
a small adverse shock could turn into
something more calamitous with policy
mistakes coming out of the White House.
What is that policy mistake? I got to
tell you I don't know what it is it
could be something on trade. That you
know with enough mischief and cutting
off enough trading relationships with
enough trading partners, you could really
start to harm U.S. growth. We have
negotiations going on with numerous
countries right now to pay a lot of
money to the United States for what
we're doing for them. I wouldn't say
they're thrilled because they've had
many many years where they didn't have
to pay.
So now they're gonna have to pay. The
question is if something bad happens are
they going to have the right instincts? I
think the biggest risk to the American
economy is Trump in the White House, an
inexperienced crew at Treasury and a
willingness for the White House to mess
with important American economic
institutions. What he's doing with the
Fed is it is a disgrace. It's a risk. It's
causing all sorts of strife that's
unnecessary and it's an own-goal.
So we see meddling in important
parts of American policy in a way that
we've never seen in our history. So the
U.S. debt is not currently the level
that particularly worries me.
What does worry me somewhat is the
trajectory for that debt. We're at a
point now where unemployment is about is below 4%. The basic rule of
thumb that we teach our undergraduates
in school is when the economy is good,
put a bit of money away.. So that when
things go south, you can come out spend a
little more and stimulate the economy. So
it's going to do a little better. You
know, when unemployment is below 4%
it's got to be the case that now
is the time to be putting a little bit
away. Instead, what we're seeing is large
budget deficits that are raising the
debt substantially. That doesn't worry me
of itself. But what worries me is if the next downturn hits, will we be in a
position to expand spending? Will we be
in a position to raise the debt as would
be required if we're in the midst of a
downturn?
Now let me get temper all of that with a
note of optimism. The single best way of
figuring out where the economy is going
next year is to figure out where it is
right now and where it's currently going.
GDP growth is robust, recent jobs numbers
have all been very strong. And if that's
the best indicator for the future, it
says the economy has been on a straight
line. Improving year after year from 2009
of the present. If it keeps on that straight
line all of our lives will get a little
bit better again next year as they have
for each of the last 10 years. If you
want proof of that take a look at my own
home country Australia. People have been
looking at its economic expansion ever
since it began 27 years ago. And I got to
tell you after five years people worried
about turned south. After seven years.
After nine years. After 11 years. it's not
just the odd-numbered years. We keep one
wondering can this expansion continue.
And the fact that Australia can expand
for 27 years in a row tells you that an
American economy, if it's well-run if
it's not subject to outside shocks, could
easily continue expanding a whole lot further.
There are many good reasons to
care about GDP. But there's a lot of
other things that real human beings, not
just economists, also care about. The
first just thing about inequality. GDP
tells us how big the size of the pie is.
it doesn't tell us whether people are
getting fair slices. So we should care
about the distribution of income, not
just how much of it there is. GDP only
tells us how much of it there is. You
think about things that might shape your
quality of life. It might be a lot more
things you might care about the level of
crime is a really important factor. Your
freedom to pursue what you care about.
Whether you feel respected. whether you
feel loved. There's a whole lot of other
things that are central to the human
experience. But outside of the stuff that
GDP has historically mentioned. We could
double GDP tomorrow. Wouldn't be that
hard. What we do is we'd force everyone
to stay at work twice as long.
Force everyone to work twice as many hours. Will probably get roughly maybe a little
bit less but nearly twice as much stuff.
GDP would nearly double but I
reckon people would be miserable. Because think about what really made you happy this year.
It wasn't the extra hour at
work. It was probably the time you took
off. What was your leisure time. The time you spent with family. The time you spent with friends and so on.
It's not hard to find ways to make people richer. Just
make them work harder. It's much harder
to find ways to make people more
satisfied and the way to do that is is
make them more productive. Give them more
options. Give them more opportunities. Not
necessarily that money is what makes you
happy. Maybe money is a marker for
something deeper. That this process of
economic development gives people more choices. More freedoms to pursue the
things that really matter.
So it's possible it's not the GDP itself
that matters. It's the process of economic
development gives us choices that people
then use to make decisions that give
them the other stuff we care about. They
give them the meaning, the joy, the love,
the freedom, from hunger, the freedom from want.
So you know the flaws with GDP are
actually quite well-documented. We
understand them the GDP focuses on what
happens in the market. It doesn't pay
enough attention to distributional
consequences. it doesn't pay attention to
what we do after hours. So one of the
things that the statistical agencies
around the world are doing, including our
own Bureau of Economic Analysis in the
United States, is finding ways to improve
GDP. So at the moment, any hours of
housework you do if you do them in your
own family home, they don't count as
adding to GDP. But if you go to someone
else's home and they pay your $12 an
hour to do that housework, that does
count as GDP. So why don't we instead
find ways of taking all the domestic
work that people do and adding it up and
counting that as part of our gross
domestic output? So that's something we
can do. We can pay attention to who gets
what. And so right now there's concern
about what we call distributional
accounts. We take GDP. We don't just
measure the size of the pie. We say, "who's
getting what pop what slices?"  We can also
think about the environmental parts. So
one of the big problems about GDP is it
doesn't measure the environmental damage that we're doing.
GDP tells us about the value of
all goods and services bought and sold
in markets. But a lot of really important
stuff doesn't happen in market.
Greenhouse gases are being expelled and
destroying the environment. So that
damage, those costs, real costs to our
planet, are not being counted as part of
GDP. Now when we have an old factory and we use it too hard and the machinery
depreciates,  we do count that . So we could do the same thing. It's not beyond us.
We measure the environmental harms that we're doing as well.
So, if I were asked to give advice to a country given what I know.
Which is that rich countries tend have citizens that report having lived
happier more meaningful lives.
How would I give them advice? I would tell them do a bunch of the things that are developed
countries, like the United States, like
Sweden, like Finland. Do a bunch of those
things. So it's not just going being
richer. Right? Those countries also have
more democracy,  they have a freer press,
they have less crime, they have a better
environment and so on. So this whole
package of Economic Development,  which
changes many, many things about both
society and the human condition. The one
thing we know is that whole package of Economic Development somehow leads
to happier more satisfied people.
