The United States faces an uncertain economic future – and perhaps grueling stagflation – as it emerges from the COVID-19 pandemic, according to a panel of experts. Top economic commentators Laurence D. Fink, Neel Kashkari, Melissa S. Kearney, Lawrence H. Summers and Greg Ip discuss America’s challenges in this wide-ranging video conversation that covers inflation, labor markets, supply chains, immigration, energy transition, productivity and growth. Executives and students will find this a robust rundown of the US economy in the 2020s.
- America’s economy is experiencing challenges not seen in more than four decades.
- Numerous factors are driving increasingly precarious and volatile economic conditions.
- Policy makers need to address structural changes in the US economy.
America’s economy is experiencing challenges not seen in more than four decades.
Present economic conditions bode ill for the United States. The year 2022 has so far seen either flat or negative economic growth, coupled with inflation approaching levels last seen in the late 1970s and the early 1980s. Supply chains faced disruptions in the COVID-19 pandemic’s aftermath, and shortages have resulted from the Russian invasion of Ukraine. At the same time, unemployment is at a nadir, and wage growth is spiking.
“In the effort to reduce [inflation], we’re likely to have some slowing of the economy and a recession. So I think that a best guess – not a certainty but a best guess – would be that there will be a stagflationary tendency in our economy for the next several years.”
Expansionary economic policies, designed to staunch the corrosive effects of the pandemic on the economy, have stoked inflation that has not abated, despite the belief of many that it would. The US Federal Reserve, resolved to tame inflation, is rapidly increasing interest rates and potentially imperiling economic growth.
Numerous factors are driving increasingly precarious and volatile economic conditions.
Low unemployment – about 3.5% in mid-2022 – is coupled with low labor-market participation and with immigration restrictions. Job openings exceed the number of those seeking work, causing wages to rise. New technologies are generating new jobs in whole new sectors, but they will continue to displace workers who are low-skilled or untrained. Additionally, the transition to clean energy is taking time and dislocating jobs in the process. And overall productivity is down.
“I don’t see any reason why we cannot have a robust economy with low unemployment, with real wage growth, with decent economic growth and low inflation. So, I don’t see any reason why we shouldn’t be able to get there. But I agree that the transition period from here to there is going to be challenging.”
In addition, highly charged partisan politics have riven American society. This short-termism is distracting policy makers from efforts to focus on the bigger picture. Part of this bigger picture is the Fed’s mandate to get inflation down to 2%; settling on anything higher would compromise its credibility. Higher interest rates will continue until the economy responds with inflation declining to this stated target.
Policy makers need to address structural changes in the US economy.
Besides inflation, officials need to address inherent structural conditions. Immigration reform will be necessary to allow more people into the country legally to replenish a labor force that is declining due to an aging population, and to ease the transitions to green energy.
“America does the right thing always, but only after exhausting all the alternatives, and I think the fact that so many people come to participate in discussions like this, because they’re so concerned, is part of a broad dynamic that for all the things we see that discourage us, make us ultimately very, very resilient.”
More robust philanthropy and state aid that would encompass educational, health care and vocational institutions could help to rebuild trust and embrace that cohort of citizens left behind. Creating a more level playing field would only help an economy destined for more discomfort in the near future.
About the Speakers
The Aspen Institute is a nonpartisan think tank. Laurence D. Fink is the chairman and CEO of BlackRock. Greg Ip is the chief economics commentator at The Wall Street Journal. Neel Kashkari is the president of the Federal Reserve Bank of Minnesota. Melissa Kearney is an economics professor at the University of Maryland and the director of the Aspen Economic Strategy Group. Larry Summers is president emeritus and a professor at Harvard University.