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The coming depression blog | April 20, 2014

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What is the future of US economy?

Think back to 1967. The job you have today may not even have existed. The Internet, and all the jobs that have come with it, were decades away. The Detroit automakers were dominant. Quality of life was different, too: The median household income was an inflation-adjusted $40,261, compared with $50,303 in 2008. There were also a hundred million fewer of us; 1967 was the year the U.S. population hit 200 million. We passed the 300 million mark in 2006, and by 2050, there will very likely be more than 400 million Americans. The lifestyle of the average American may change just as much from 2010 to 2050 as it did from 1967 to 2006. The economy will especially undergo change.

I believe that most Americans are already aware that the economy of the United States is slowly collapsing because of huge trade deficits, off shoring of manufacturing jobs, outsourcing of white collar jobs, the ballooning costs of Social Security and Medicare, the faltering housing market, the credit (subprime) crunch, the continuously unbalanced budget, and an exponentially rising national debt. Additionally, I believe that most Americans are aware that the wars in Iraq and Afghanistan are probably failing and adding even more financial pressures to the economy of the United States of America.

Think back to 1967. The job you have today may not even have existed. The Internet, and all the jobs that have come with it, were decades away. The Detroit automakers were dominant. Quality of life was different, too: The median household income was an inflation-adjusted $40,261, compared with $50,303 in 2008. There were also a hundred million fewer of us; 1967 was the year the U.S. population hit 200 million. We passed the 300 million mark in 2006, and by 2050, there will very likely be more than 400 million Americans. The lifestyle of the average American may change just as much from 2010 to 2050 as it did from 1967 to 2006. The economy will especially undergo change.

The U.S. is still millions of jobs behind where it was when the Great Recession started, and now has less people employed than in 2001. The economy has been unable to create jobs due to America’s massive trade deficit caused by failed economic policy.

We hear less and less about what is happening in the rest of the world, unless there is a significant natural disaster or we’re involved in a military conflict. The last ‘great recession’ that began December 2007, according to the National Bureau of Economic Research affected most countries around world. Because we have had a difficult time rebounding from the economic downturn, it’s assumed that most other countries are also. That is not necessarily the case.

These days, it is common to read forecasts predicting that the US economy will grow at a 3% annual rate in the coming year. But just what does that mean?

Many forecasters currently believe that there is a significant probability that the economy will slump during the next 12 months – a “double dip” in the expansion process. It is possible for them to hold that view and still forecast 2% growth for the next 12 months as the most likely outcome or the “median” of their probability distribution.

Ultimately, innovation is what allows an economy to grow quickly and create new jobs as old ones obsolesce and disappear. Typically, one salutary side effect of recessions is that they eventually spur booms in innovation. Some laid-off employees become entrepreneurs, working on ideas that have been ignored by corporate bureaucracies, while sclerotic firms in declining industries fail, making way for nimbler enterprises.

The death of the suburbs is highly exaggerated. In the 20th century, the suburbs became the primary place for Americans to live. But the recent housing market crash, high gas prices, and concerns about environmental sustainability have caused many to wonder how long suburbs will be able to grow. Kotkin writes that the suburbs will not only continue to grow; they will become even more like cities. “The suburbs of the future will in many ways be more diverse than the cities,” Kotkin told U.S. News. While the suburbs of the 1950s were predominantly white, suburbs today have an increasing number of ethnic minorities and recent immigrants. A major reason suburbs are changing is that they are providing more jobs than ever.

It appears to me that a lot of Americans are ignorant concerning the economy or are not really interested in learning about it. For example, try starting a conversation about the economy with someone and observe if the conversation moves beyond complaining about rising prices, inflation, high taxes, low income, evil government, and corporate greed. Very few people would discuss possible ideas for solutions

If an extended period of slow growth is more likely than the official projections suggest, we’re in for a much nastier mix of high unemployment in the near term and large budget gaps over the medium term. This is only more evidence that the right policy response is a combination of more aggressive action to bolster the job market now and much more deficit reduction enacted now to take effect in a few years. On both strategies, we should be as bold as we can.

Less to fear from China: America is becoming a more elderly country, but it’s not alone. Demographics, Kotkin argues, will prevent China from eclipsing the United States as an economic superpower, as some have predicted. In the late 1980s and early 1990s, Kotkin disagreed with people who feared that the Japanese economy was going to outcompete America. Today, he says similar claims about the Chinese economy are just as overblown. The United Nations has projected that in 2050, 31 percent of China will be over age 60, compared with 25 percent in the United States. Because of its aging populace, China will have to spend more to care for the elderly and deal with workforce shortages. The United States will surely face those problems with baby boomers, but Kotkin argues that America is better equipped to handle its aging citizens than China. “We have a little more of a head start. Our older people have quite a bit more money,” he says. China will still be a superpower, Kotkin says—but it will share that status with the United States and India.

What is the future of the US economy? Based on the choices we’re making, it may take a very long time to see a robust, vibrant economy.

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