Thursday, March 10, 2016

Who Gets the Blame for the Slowing Economy?

Steven Rattner MARCH 10, 2016, NYT

ECONOMIC alarm bells are ringing: Financial markets have wilted. Forecasters have been slicing their projections for future growth. And some leading wise men — including the megabillionaire George Soros — are predicting a return to disastrous 2008 conditions. That’s almost certainly an overly pessimistic view. But without a doubt, the leading global economies are in a major slowdown.

Not evident is whether another recession looms. While current data suggests that modest growth continues in the United States, economists are notoriously bad at forecasting downturns. As The Economist noted, between 1999 and 2014, the International Monetary Fund, in its April forecasts, failed to predict every one of the 220 instances in which one of its members suffered negative annual growth in the next year. Even the Federal Reserve uncharacteristically recently described the outlook as “unclear.”

What’s unusual about today’s raft of challenges is the extent to which governments around the world have added to the problems, rather than ameliorating them. Poor policy choices, like misguided spending priorities and too much austerity, have added to the drag on growth. Notably, failing to act at all has cut deeply into business and investor confidence, an important support mechanism for markets and consumers alike.

Governments alone are not to blame; the reasons for the sagging economies are multifarious and jumbled, more de Kooning than Mondrian.

For a start, global competition and weak productivity growth have held down wages in developed countries. That has depressed consumer spending, as have increased saving and growing income inequality, which has pushed more money into the hands of the rich, who are less likely to spend it.

(More here.)

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