The Economy in 2016: On the Edge of Recession – By Robert Reich

The Economy in 2016: On the Edge of Recession
by Robert Reich – Monday, January 04, 2016 – by RobertReich.org

“I’d feel more optimistic if I thought government was ready to spring into action to stimulate demand,” writes Reich, “but the opposite is true.” (AP Photo/Charlie Riedel)

Economic forecasters exist to make astrologers look good, but I’ll hazard a guess. I expect the U.S. economy to sputter in 2016. That’s because the economy faces a deep structural problem: not enough demand for all the goods and services it’s capable of producing .  

American consumers account for almost 70 percent of economic activity, but they won’t have enough purchasing power in 2016 to keep the economy going on more than two cylinders. Blame widening inequality.

Consider: The median wage is 4 percent below what it was in 2000, adjusted for inflation. The median wage of young people, even those with college degrees, is also dropping, adjusted for inflation. That means a continued slowdown in the rate of family formation—more young people living at home and deferring marriage and children – and less demand for goods and services.

At the same time, the labor participation rate—the percentage of Americans of working age who have jobs—remains near a 40-year low.

The giant boomer generation won’t and can’t take up the slack. Boomers haven’t saved nearly enough for retirement, so they’re being forced to cut back expenditures.

Exports won’t make up for this deficiency in demand. To the contrary, Europe remains in or close to recession, China’s growth is slowing dramatically, Japan is still on its back, and most developing countries are in the doldrums.

Business investment won’t save the day, either. Without enough customers, businesses won’t step up investment. Add in uncertainties about the future—including who will become president, the makeup of the next Congress, the Middle East, and even the possibilities of domestic terrorism—and I wouldn’t be surprised if business investment declined in 2016.

I’d feel more optimistic if I thought government was ready to spring into action to stimulate demand, but the opposite is true. The Federal Reserve has started to raise interest rates—spooked by an inflationary ghost that shows no sign of appearing. And Congress, notwithstanding its end-of-year tax-cutting binge, is still in the thralls of austerity economics.

Chances are, therefore, the next president will inherit an economy teetering on the edge of recession.

This post also appeared on Politico today.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.

Robert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, Aftershock: The Next Economy and America’s Future; The Work of Nations; Locked in the Cabinet; Supercapitalism; and his newest, Beyond Outrage. His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.

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Comments

  • de castro  On January 5, 2016 at 2:53 am

    Interesting comment with forecasting (speculating) from an economist.
    Not much to disagree with in his report.
    However it is “long on forecasting short on solutions”…..

    My two cents
    USD is overvalued even after printing (QE…quantitive easing) trillions.
    Even accused China of devaluation of Chinese currency to boost exports.
    Markets determine exchange rates not FED or Central Banks.
    Now that China is member of WB (world bank) joined in November 2016
    no reason to complain.
    Suggestions for a consumer led economy..
    1. Increase wages
    2. Introduction of minimum wage
    3. Full employment (no unemployment in China)

    Not to mention reduced indebtedness and no more money printing.
    Americans have been living too long “above their means” chickens are
    coming home.

    My take
    Kamtan in euroland and loving it….in espania.20°C and sunny.

  • Rosaliene Bacchus  On January 5, 2016 at 12:25 pm

    “Blame widening inequality.” [Robert Reich in article above.]
    Those at the apex of the pyramid have forgotten that their existence and security depends upon a firm and solid base.

    • de castro  On January 5, 2016 at 1:05 pm

      Dog eat dog….in a word “dogmatic” principles.
      We are but fools in our paradise.

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