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  5. The U.S. Economy: Growth, Stagnation or Financial Crisis and Recession?
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The U.S. Economy: Growth, Stagnation or Financial Crisis and Recession?

Paper Session

Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)

Convention Center, 303 B/C
Hosted By: Society of Policy Modeling & American Economic Association
  • Chair: Dominick Salvatore, Fordham University

Inflation, Financial Crisis, and Recession

Robert Barro
,
Harvard University

Abstract

The U.S. economy in recent years was influenced mostly by the COVID recession and recovery, the dramatic increases in federal spending in response to the recession, the resulting surge in inflation, and the rise in interest rates. Preliminary evidence for 37 OECD countries supports the idea that fiscal expansion underlies the surge in inflation for 2020-2022. The sharp increases in short-term interest rates starting from a value near zero raise the potential for a U.S. financial crisis of the sort exemplified by Silicon Valley Bank and First Republic. The inflation rate has declined from its peak, but the Federal Reserve is persisting, I would say unwisely, on its path of raising interest rates. Overall, this picture suggests a recession by 2024, likely mild unless the financial crisis turns out to be severe.

Recovering and Risky Growth

Janice Eberly
,
Northwestern University

Abstract

The COVID-19 pandemic jolted the US economy, variously inducing closures, reallocation, and acceleration, depending on the sector and policy impact. Even as the pandemic abates, repercussions include: (i) new technologies and preferences that will carry beyond the pandemic; (ii) reallocation, for example from commercial to residential real estate, and the reversal of policy support from sectors that had remained stable, like financial services; and (iii) global instabilities, seeded during the pandemic, as well as emergent challenges in climate, conflict, and governance. These instabilities, in particular, make the path forward less predictable and less resilient to systemic shocks.

Growth: Possibilities, Policy, and Political Economy

R. Glenn Hubbard
,
Columbia University

Abstract

Economic growth is foundational for living standards and as an objective for economic policy. The emergence of Artificial Intelligence as a General Purpose Technology, on the one hand, and a number of demographic and budget challenges, on the other hand, generate an unusually wide range of future economic outcomes. I focus on key ‘policy’ and ‘political economy’ considerations that increase the likelihood of a more favorable growth path given pre-existing trends and technological possibilities. By ‘policy,’ I consider mechanisms enabling growth through research, taxation, the scope of regulation, and competition. By ‘political economy’ factors, I consider mechanisms to increase economic participation in support of growth and policies that enhance it. I argue that both sets of mechanisms are necessary for a viable pro-growth economic policy framework.

The Global Economy at a Turning Point

Kenneth Rogoff
,
Harvard University

Abstract

A combination of excessive post-pandemic stimulus, war in Ukraine, and the end of Chinese growth epoch, has radically shocked global macroeconomic equilibrium. Average long-term real interest rates could plausibly remain high in the coming decade, as compared to 2012 to 2021. If so, there will be profound implications for financial stability and debt sustainability. The repercussions are likely to be felt world-wide, undermining many policy ideas and agreements that are predicated on lower forever. The rapid rise of AI likely calls into question the Robert Gordon thesis that innovation is dead, but populism may nevertheless imply lower trend productivity growth.

How to Get Monetary Policy Back on Track

John Taylor
,
Stanford University

Abstract

The presentation is based largely on a conference we just held at Stanford, which focused on the Fed and on other central banks around the world. The message of the paper is that the Fed had got behind the curve—based on the widely quoted Taylor Rule. Now they have raised the federal funds rate, and they are much less behind the curve. The question now is how they and other central banks—including the European Central Bank and the Bank of Japan---will get back on track. That will be the focus of the paper.

Discussant(s)
Dominick Salvatore
,
Fordham University
JEL Classifications
  • E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy