Professor Christian T. Lundblad May 2013 flagler.unc.edu/faculty/lundblac/ The U.S. & Global...

Professor Christian T. LundbladMay 2013

http://public.kenan-flagler.unc.edu/faculty/lundblac/

The U.S. & Global Economy: Navigating

the New Normal

2013 CAHEC Partners Conference



Where are we now?

• Economic Output, Employment and Inflation• Monetary & Fiscal Policy• External Balance & Globalization

• Headwinds going forward…

© Prof. Christian T. Lundblad

Where are we now?Slow recovery…


Immediate Challenges:


Where are we now?The Great Recession…. still…


European Unemployment


Where are we now?The Great Recession…. still…


Youth Unemployment is a Particular Policy Concern


McKinsey.com

• Structural Unemployment

• In the U.S., housing remains an issue

• Firms face elevated uncertainty and frictions

Headwinds: Unemployment


Headwinds: Unemployment

McKinsey.com

These are not coming back in the same way

Serious questions about structural unemployment


Headwinds: Unemployment“The Great Mismatch”


Labor Adjustments…?Unemployment by States September 2012

Bls.gov


Together, … Excess Capacity in the U.S.

Source: CBO


Together, … Excess Capacity in the Europe.


Financial Crises and Recessions Around the World

Downturns, while painful, are usually relatively brief


Additional Contraction?

Despite all this, the baseline forecast (still) does not call for a so-called “double-dip”

Forecast Risks:(1) U.S. fiscal drag(2) Euro-area contagion(3) Global political instability

At best, will likely have more of the same for 2013-2014. (2% GDP growth)

The efficacy of active policy is necessarily limited in the face of these broader challenges.

Macroeconomic Policy

Macroeconomic policy broadly describes the main levers that are available to the government to stimulate or re-direct economic activity

Fiscal & Monetary policy

Much of modern macroeconomic policy attempts to limit excess capacity (e.g. keep the economy at full employment)


Fiscal Policy = Deficit Spending


Monetary Policy = Interest Rate

(through 2015...?)


Non-traditional Monetary Stimulus (QE)


Road to Recovery

• The U.S. (and global) economy will not see a healthy recovery until significant long-run imbalances are rectified.

• This will take some time. In fact, a return to 2005 is undesirable.

• Active policies will struggle in the face of these rebalancing dynamics.


Challenge #1: The U.S. Consumer

The days of excess consumption are over; where is the engine of the global economy?

This raises particular challenges for exporting nations.

Consumer-oriented U.S. and global businesses will continue to struggle.


Challenge #1: Excess U.S. Consumption is Over


GDP by Expenditure in the U.S. (% of GDP)


Challenge #2:The Trade Imbalance



Challenge #3 Fiscal AusterityThe United States

Demographic Shifts


Federal Reserve

Corollary to #2 and #3:Foreign Holdings of U.S. Treasuries


Challenge #4:

Finally, Globalization & Inequality


Income inequality in the U.S. (and globally) has unambiguously widened

Challenge #4:

Finally, Globalization & Inequality


Road to Recovery…Final Thoughts

• We are slowly recovering.

• We must also acknowledge that the global economic landscape is changing. The U.S. needs to establish a sustainable balance with the rest of the world. Emerging countries, including China, must significantly re-allocate resources

• This does not call for protectionism. We need not fear the future, but it will be different.

• Households, firms, and governments need to prepare for an altered playbook.


• Partnerships & Engagement: The good news is that opportunities are plentiful (but this requires greater global engagement).

• The engine of global economic growth increasingly resides in the emerging world (but important changes are required).

• Competition…– Math & science education– Renewed commitment to technological innovation– Fostering entrepreneurial spirit and risk-taking

Road to Recovery…Final Thoughts


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Professor Christian T. Lundblad May 2013 flagler.unc.edu/faculty/lundblac/ The U.S. & Global...

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