Download International Trade – A Global Transformation Mark S

The U.S. in the Post-2008 World
Economy
Mark S. LeClair, Fairfield University
April-May 2015
Five Meetings for this Sequence
• Topics:
– The 2008-09 Economic Crisis and Recovery (Day 1)
– The U.S. and the Changing Global Economy (Day 2)
– The Global Monetary System in Flux – the
Changing Role of the Dollar (Day 3)
– The Rise of China and the other BRICs (now the
BICs, since Russia not a particularly good place to
put money right now!) (Day 4)
If you want copy of slides
• Go to: www.faculty.fairfield.edu/mleclair
• Click on link that says:
• Lifelong Learning (about 1/3 of the way down
the page)
– Must have PowerPoint on computer to retrieve
slides
– There is also a link from a talk on April 14th, so
make sure you click the correct presentation
Begin with a Post-Mortem of 2008
Downturn
• Deepest recession since Great Depression
– Although 1982 downturn produced similar
problems with unemployment
– Crises that originate on financial side tend to be
longer and more intractable.
– Foundations of recession:
• Poor government policy and poor regulation
• CRA and Countrywide
– Housing bubble and misuse of financial instruments
• Problem not necessarily solved.
Economic Crisis Produced Some
Fundamental Changes
• While growth returned, labor market has yet
to recover
– Dropping unemployment rate more a reflection of
falling Labor Force Participation Rate
• For those who love numbers, see bls.gov
– Labor demand remains weak 5 years out from the
recession
Policy Lessons
• Depth of 2008 recession led to the use of both
fiscal and monetary policy tools
– Fiscal stimulus passed in January 2009 was too
complex and the pace of spending too slow to
affect economy in intended way
– Christina Romer’s math:
$878 billion * multiplier of 1.56 = $1.37 Trillion in
new spending = 11.3 million new jobs (@$122,000
per job)….That didn’t happen! (gap was only 5
million jobs)
Monetary Policy
• Federal Reserve flooded economy with
liquidity:
– QE 1 -> QE 2 -> QE 3 -> The “twist” -……QE?
• Response of economy very slow. Typical of
downturns that originate on the financial side
of the economy
• Equivalent to printing money, so WHY no
inflation (hint: what happened to velocity?)
So…….was Bernanke a genius?
Situation Very Stressful for
Economists
• Used both policy tools and recovery was very
weak.
• Don’t have a third option to try. Exchange
rate policy not valid for large economies
• Did learn a lesson that has been repeated
many times…..Government policy (Keynsian
policy) designed to end a recession must be
“fast and furious”
A Picture of the 2008 Recession
Raised Anew the Debate Between
Keynsians and their critics
• Does increased government spending really
stop a downturn?
• Weak recovery suggests that it may not work
that well
Video
• A little entertainment on Keynsian Economics
https://www.youtube.com/watch?v=GTQnarz
mTOc
U.S. Growth now Considered
“moderate”
• Distressing GDP growth figure from 4th
quarter of 2014 – 2.2% growth (source BEA)
• Hope it is an anomaly
• Europe remains mired in its own crisis
– 2008 recession and the PIIGS
– Daily pronouncements that Greece is likely to
default
– U.S. should at least be pleased we do not have a
common currency to fret about.
Bureau of Economic Analysis
What is Holding Back U.S.
Economy?
• Appreciation of the dollar
– Growth in export markets suppressed
– Crisis in the European Union makes further
appreciation of the $ likely
• Euro now worth roughly $1.08 – was once at $1.50
– Similarly, Japan has devalued its currency – from
88 Yen/$ to 120 Yen/$
• Foreign products appear much cheaper, hurting U.S.
exports
Also – Accumulation of Cash
• U.S. businesses are holding on to very large
amounts of liquid assets
– Instead of investing
– Currently $1.64 Trillion (Bloomberg)
• Reflection of what appears to many to be a
weak and uncertain economic picture
• Difficult to fix
End of Day One
• Questions and Suggestions for What is
covered tomorrow when we examine the
global economy