Austan Goolsbee, the University of Chicago economics professor and former chairman of President Barack Obama’s Council of Economic Advisers, began his lunchtime speech at the Morningstar ETF Invest conference Thursday by listing some of the problems with the country, not least the “craziness” in Washington around the current government shutdown.
He followed up, however, with another list that demonstrated why he remains optimistic about our economy.
As for his negative thoughts, Goolsbee said he anticipated that the stubbornly slow economic recovery would continue, noting that this recovery was similar to the non-V-shaped one that followed the dot-com bust.
He went on to quote a headline (actually from July 2008) from the satirical publication The Onion: Recession-Plagued Nation Demands New Bubble To Invest In (sample facetious quote from that article: "What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution.")
So what can actually get the economy growing faster? Goolsbee considered and rejected a number of potential saviors, including housing, the Federal reserve and emerging markets.
“Growth is high” in China, he admitted, while questioning the official data about the Chinese economy, but “it’s starting from a smaller base.”
Forget about Europe, he said, where politicians became excited recently because new data suggested that the Continent was finally approaching growth of … zero.
How long will the current government shutdown last? Goolsbee suggested two weeks, until it becomes apparent that “one side is winning” the argument.
Current polling “suggests people are getting angrier with the Republicans” than the Democrats in the shutdown standoff. He said that Republican lawmakers “who are in the middle” will face mounting pressure to force a compromise from their party, though he expects any deal will only last for the next six months.
That’s a shame, he said, because while “everybody knows that we have a long-run fiscal challenge, what everybody doesn’t understand” is that the challenge “is totally manageable.”
Returning to the prospects for renewed economic growth, there are three positive characteristics of the U.S. economy that will eventually bring us more complete recovery, the gravel-voiced Texas native said.
First is entrepreneurship, which he argued has made the United States the richest country on earth and will continue to do so. That trait, combined with American innovation, is something that isn’t limited to small startups and Silicon Valley companies, he argued. Research has shown that large and midsize companies are open to innovation as well as smaller, newer companies.
He also told a well-received story about President Vladimir Putin of Russia, ordering that a new Russian Silicon Valley be built somewhere in Siberia. Steve Jobs, Goolsbee pointed out, didn’t start Apple because the government ordered him to set up shop in Silicon Valley, and the Russian experiment won’t succeed.
The second trait of the American economy that bodes well for the future is U.S. workers’ high productivity. American productivity is the highest in the developed world, he pointed out, though he also jokingly noted that technically the U.S. was second worldwide, after “the 250,000 workers in Luxembourg.”
The third trait that will ensure a healthy future American growth is our demographics, he said, noting that our “population is aging more slowly than those of the rest of the developed world.”
When will we know the recession is over? Goolsbee only half-jokingly said it would be when “25-year-olds move out of their parents’ basements” and decided to rent, not own, their own places. “They’ll buy pots and pans and futons,” reflecting that there’s “plenty of pent-up demand.”
The once (and future?) Washington insider used his knowledge of what goes on inside the Beltway to answer two audience members’ questions on Obamacare and who will be the next leader of the Federal Reserve.
As for the Fed, he expects that not only will Janet Yellen (“my good friend”) become the next Fed chief, but that she will be a good choice.
”She’s a good communicator,” who will follow the program laid out by Ben Bernanke to tie QE tapering to economic conditions, he said, though he admitted to being as “confused as everyone else” by the September FOMC meeting minutes.
Yellen is not only a “good explainer” of policy, Goolsbee said, she’s “also diplomatic.”
As for the Affordable Care Act, Goolsbee admitted that implementation of the ACA is “adding to uncertainty for businesses,” though he was unapologetic about the law, asking rhetorically: “How important is it to cover 40 million people with health insurance?”
The problem with health care, he said, is that in trying to figure out how to fix the American health care system, there are five different groups with totally different ideas about what works, listing as two examples those who believe preventive care is most important, and others who believe that the system will only be fixed when health care consumers have to use their own money to pay for care.
All five of these groups “hate each other,” but the Obama administration decided not to pick one approach, but rather to “take 20% of all five camps’ recommendations” and put them together into one system.