Five reasons for the superpower to feel cheerful, and five things it must watch out forby Prospect Team / May 20, 2014 / Leave a comment
The US faces new opportunities—and new challenges. © Sgrstan
This month, Prospect hosted a roundtable discussion with former White House advisor and top economist David Hale, in which we posed the question: “Is the US open for business?”
Hale focused first on the US economy, then moved on to discuss politics and security. His verdict? The economy is looking healthy, but there is cause for concern on the horizon in the shape of China.
Below, we’ve drawn from his talk five key reasons for the US to be optimistic, and five things it needs to watch out for.
Five reasons for the US to be cheerful Goodbye to fiscal drag:
“Last year we had big tax increases and spending cuts which came to almost 2 per cent of GDP. That kept the economy’s growth rate about 1.9 per cent. If we hadn’t had a fiscal drag the growth rate last year would have easily been 3 per cent.”
Monetary policy is stable:
“Fed Chair Janet Yellen is very focused on the issue of long term unemployment, which currently stands at about 2.4 per cent. That’s down from 4 per cent three or four years ago but it’s still well above the six year moving average of 1.1 per cent. I think she’ll want to get that number down to 1.5 per cent before she thinks about changing policy.”
Pent up demand:
“We’ve been underinvesting for a long time. If we’re going to raise productivity we have to spend more on capital goods, indeed fund managers now are telling managements: ‘don’t keep buying your stocks back, actually buy some capital goods, because we need to raise investment to improve productivity.’”
Oil and Gas are booming:
“The US oil production has gone from 5.5m barrels four years ago to almost 8m barrels and could within three years be at 10m barrels. Our natural gas prices have now fallen to the lowest levels in the world. That’s attracting investment from countries like Germany looking for low cost gas to replace European gas which is currently much more expensive.”
“We have had a great recovery in the banking system—bank profits are now back to where they were in 2007 before the financial crisis… There has been in the last three months quite a major increase in commercial lending for the first time in…