Tuesday, January 05, 2010U.S.Likely To Perform Poorly

Luca Di Leo of Wall Street Journal & Michael S. Derby Of Dow Jones NewswiresU.S. Economy Likely to Perform Poorly Over Next Decade

The U.S. economy is this decade likely to perform as poorly as the one that just ended due to higher savings by more cautious Americans and a less qualified labor force, several top economists said Sunday.

The world's largest economy is expected to see between 2009 and 2019 growth in gross domestic product - a broad measure of economic activity - close to the annual average of 1.9% seen between 1999 and 2009, economists said.

That marked the worst performance since the 1930s, the decade of the U.S. Great Depression.

The economic recovery seen from the second half of 2009 has been driven by a government stimulus that will be fading in 2010, warned Martin Feldstein, a Harvard University economist and former Reagan administration economist.
“It's easy to be dismal about the U.S. economy,” said Dale Jorgenson, an expert on productivity who sees a deterioration in the quality of the labor force causing productivity growth to fall to 1.5% a year this decade from 2% a year in the last 10 years.

Following a financial crisis that was partly a result of Americans spending beyond their means, Nobel-laureate economist Joseph Stiglitz said the U.S. savings rate could go markedly higher in the coming years.

“We're not likely to have robust growth any time soon,” Stiglitz told a panel at the annual meeting of the American Economic Association entitled “Growth or Stagnation After The Recession.”

Both Stiglitz and Kenneth Rogoff, a Harvard University economist, warned the large debt accumulated to counter the crisis will be a major headache for the U.S. economy. They also cautioned there could be a new crisis down the road unless the U.S. regulatory system is improved.

On a more optimistic note, economists said China and India should continue to propel the world economy forward, which in turn would help the U.S.

Feldstein said there could be a substantial improvement in net exports out of the U.S. “That's where we could see a shift in aggregate demand, which could bring us back to full employment.”

Feldstein: Economy MiHarvard's ght Run Out of Steam in '10

Veteran economist Martin Feldstein, of Harvard University, is not sure the U.S. economy will escape a second trip back into recession in the new year. Feldstein, who is also the emeritus president of the business cycle dating organization the National Bureau of Economic Research, tied this risk of a renewed downturn after the worst recession in decades to a poorly conceived government stimulus effort. “I supported the idea we needed to have a fiscal stimulus, somewhat to the dismay of my conservative friends,” Feldstein said Sunday at a meeting of the American Economic Association in Atlanta. But the design of the stimulus was put in the hands of congress and it was poorly done, which meant it “delivered much less” in actual stimulus than its nearly $800 billion price tag suggested it should. While the stimulus has helped push the economy out of recession so far, other negative forces still at play raise questions about the effort's ultimate durability. “There is a significant risk the economy could run out of steam sometime in 2010,” Feldstein warned. In his comments, Feldstein was also worried about the longer run U.S. fiscal situation, which contains a rising and worrisome tide of U.S. debt. But his worry was countered by James Galbraith, of the University of Texas-Austin. The academic agreed with Feldstein that the fiscal stimulus had underdelivered, but said the remedy to that was to do even more government stimulus. Galbraith downplayed the budget implications of this new borrowing. “You pay too much attention to those voices” who worry about rising debt-to-GDP ratios. “Those numbers are financial artifacts,” and “the problem to focus on is the 14 million unemployed,” Galbraith said. He noted that the debt-to-GDP ratio hit 100% of GDP after World War II, and that period was followed by a huge period of U.S. economic growth. In a later session, Joseph Stiglitz, the Nobel laureate. warned against “deficit fetiishism,” and said government spending could go to productivity-improvement investments, such as environmental technology. But Olivier Blanchard, chief economist of the International Monetary Fund, countered that prospective investments in green projects were too small to have a macro-economic impact

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