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How Might the U.S. Economy Recover from the Great Recession?

How Might the U.S. Economy Recover from the Great Recession?. Matthew J. Slaughter Tuck School of Business at Dartmouth, NBER, and CFR Economic Club of Minnesota Minneapolis, MN October 28, 2010. Outline of This Afternoon’s Conversation.

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How Might the U.S. Economy Recover from the Great Recession?

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  1. How Might the U.S. EconomyRecover from the Great Recession? Matthew J. Slaughter Tuck School of Business at Dartmouth, NBER, and CFR Economic Club of Minnesota Minneapolis, MN October 28, 2010

  2. Outline of This Afternoon’s Conversation • How Might the U.S. Economy Recover from the Great Recession? • Based on the Decisions of Both You and of Government Officials, What Role Will Your Companies Play? • Let’s Examine These Questions with 5 Sobering Numbers: One Date, and Four Percentages. Matthew J. Slaughter, ECOM 10/28/10

  3. #1: January 2020 Matthew J. Slaughter, ECOM 10/28/10

  4. The Severity of the U.S. Recession in Jobs:Employment Changes from Recession Starts Matthew J. Slaughter, ECOM 10/28/10

  5. The Severity of the U.S. Recession in Jobs • Many labor-market measures remain grim. • Underemployment today is 17.1%: 26.4 million. • Labor-force participation rate has fallen in the recession by 1.5 percentage points. • 41.7% of all unemployed have been so for 27+ weeks. • There are 11.7 million manufacturing jobs today. America last had that few in April of 1941. • Gallup: “Unemployment now stands alone as … the most important problem facing the country.” Matthew J. Slaughter, ECOM 10/28/10

  6. How Long Will the Damage Last? • Peak to trough: 8.4 million payroll jobs were lost (6.1%), 8.5 million private-sector jobs (7.3%). • Neither large nor small businesses are yet collectively poised to hire aggressively. In Sept. 2010 there were 108 million U.S. private-sector payroll jobs: about the same as in March 1999. • It took 48 months to regain the lost 2.0% of jobs in the 2001 recession. At that rate, the U.S. would again reach 12/07 total payroll jobs around January 2020. Matthew J. Slaughter, ECOM 10/28/10

  7. #2: 70.8% Matthew J. Slaughter, ECOM 10/28/10

  8. Do We Really Want This To Climb More? Matthew J. Slaughter, ECOM 10/28/10

  9. Our Future Capacity Has Been Shrinking Matthew J. Slaughter, ECOM 10/28/10

  10. Can the U.S. Economy Be Re-Balanced? • Consumption spending by households accounted for 70.8% of total U.S. GDP in 2009 ($10 trillion!). This is very, very high. • For many reasons, America would benefit from re-balancing its output more towards exports and capital investment. • Will the United States find the will to pursue and implement policies needed to foster economic growth via capital investment and exports? Giving speeches alone is not sufficient here. Matthew J. Slaughter, ECOM 10/28/10

  11. #3: 77.1% Matthew J. Slaughter, ECOM 10/28/10

  12. America’s Educational Lead Is Shrinking • America’s dramatic educational upgrading of the 20th century largely stopped in the past 40 years. • In 1969 the U.S. high-school graduation rate was 77.1%, up from just 5% in 1900. That same rate today is about 75%. • Male rates of college attendance/completion have also flat-lined. • Meanwhile, the skill upgrading in many other countries continues—often at an accelerating rate. • Today among industrialized nations, U.S. ranks 16th in college-completion rates and 20th in high-school completion rates. • The number of Chinese who enroll in university each year has jumped from 1 million in 1997 to 6 million today. Over that time, the number of Chinese universities has more than doubled. Matthew J. Slaughter, ECOM 10/28/10

  13. Many Other U.S. Advantages Are Eroding • Uncertainty about the role and scope of government in several key industries: finance and insurance, housing, autos, health, energy, …? • “How to Destroy American Jobs” Slaughter WSJ op-ed 2/3/10 • The Protectionist Drift away from Open Borders • “It’s a Terrible Time to Reject Skilled Workers” Danos/Hansen/Slaughter WSJ op-ed 3/11/09 • The Crumbling Infrastructure: What grade did ASCE assign last year? • “How to Jump-Start American Manufacturing” Kimmitt/Slaughter Wash Post op-ed 8/13/10 Matthew J. Slaughter, ECOM 10/28/10

  14. Did This Day Help Resolve Business Uncertainty? • “An Auto Bailout Would be Terrible for Free Trade” my WSJ op-ed 11/20/08 • “Do you approve or disapprove of the federal government providing loans and financial assistance to Chrysler and GM?” Approve: 39%. Disapprove: 53%. (NBC News-Wall Street Journal Survey, 8/26-30, 2010) Matthew J. Slaughter, ECOM 10/28/10

  15. #4: 96.4% Matthew J. Slaughter, ECOM 10/28/10

  16. The Rising Tide Has Not Been Lifting All the Boats • Change in U.S. average real total money earnings, by educational group, 2000 through 2009. • GroupEmployment ShareEarnings Change LTHS 8.7% -10.0% HSG 28.8% -9.4% SC 27.5% -6.6% CG 22.5% -5.5% Masters 8.9% -1.3% Ph.D. 1.8% +1.8% MD,JD,MBA 1.8% +11.1% • 2009 real median income for U.S. households was $49,777. This was about equal to the level of 1997. Matthew J. Slaughter, ECOM 10/28/10

  17. Which Boat Do You Want To Be In? Matthew J. Slaughter, ECOM 10/28/10

  18. Angry Boaters Become Angry Voters • The outcome of these hearings was the U.S. House of Representatives overwhelmingly passed a bill that would levy an ex-post marginal tax rate of 90% on the earnings of thousands of banking and finance workers. Matthew J. Slaughter, ECOM 10/28/10

  19. #5: 17% Matthew J. Slaughter, ECOM 10/28/10

  20. Angry Boaters Also Turn on Globalization • “Americans Sour on Trade” (WSJ 10/4/10 Page A1) • “In general, do you think that free trade agreements between the United States and foreign countries have helped the United States, have hurt the United States, or have not made much of a difference either way?” • December 1999: 39% Helped vs. 30% Hurt • March 2007: 26% Helped vs. 48% Hurt • September 2010: 17% Helped vs. 53% Hurt • “Are you personally benefiting from today’s global economy?” (WSJ/NBC March, 2007) • High-school graduates and below saying yes: 20%. • College graduates and above responding yes: 35%. Matthew J. Slaughter, ECOM 10/28/10

  21. The Sound of More General Economic Fear • “Americans Sour on Trade” (WSJ 10/4/10 Page A1) • “Even Americans most likely to be winners from trade—upper-income, well-educated professionals, whose jobs are less likely to go overseas and whose industries are often buoyed by demand from international markets—are increasingly skeptical … ‘The important change is that very well-educated and upper-income people compared to five to 10 years ago have shifted their opinion and are now expressing significant concern about the notion of...free trade,’ said Bill McInturff, a Republican pollster who helps conduct the Journal survey.” • “Americans Sour on Trade” (WSJ 10/4/10 Page A1) • “Recently the NBER … declared that the country’s recession officially ended more than a year ago, in June 2009. What do you think? • Yes, recession is over: 19% • No, still in a recession: 70% Matthew J. Slaughter, ECOM 10/28/10

  22. Fear About Today and About the Future • “Do you think America is in a state of decline, or do you feel that is not the case?” (WSJ-NBC 8/10) • Not in a state of decline: 31% • In a state of decline: 65% • “Do you feel confident or not confident that life for our children’s generation will be better than it has been for us?” (WSJ-NBC 8/10) • October 1990: 50% Confident vs. 45% Not Confident • December 2001: 49% Confident vs. 42% Not Confident • August 2010: 27% Confident vs. 66% Not Confident Matthew J. Slaughter, ECOM 10/28/10

  23. The One-Word Political Response? • “Steelworkers Accuse China of Violating Trade Rules” (NYT 9/9/10 Page A1) • “With Warning, Obama Presses China on Currency” (NYT 9/23/10 Page A1) • “House Lashes Out at China” (WSJ 9/30 Page A1) • The vote on this bill was 348-79. • “China Emerges as a Scapegoat in Campaign Ads” (NYT 10/10/10 Page A1) • “With many Americans seized by anxiety about the country’s economic decline, candidates from both political parties have suddenly found a new villain to run against: China … Democrats and Republicans are blaming one another for allowing the export of jobs.” Matthew J. Slaughter, ECOM 10/28/10

  24. How Does All This Add Up? Matthew J. Slaughter, ECOM 10/28/10

  25. Minnesota Math: More Global Engagement • In August the Minnesota unemployment rate stood at 7.0%, up from 4.0% in 2006. 2009 median household income in Minnesota of $55,616 was down from 2007 level. So where can the new jobs come from for Minnesota families? • Insourcing may be one option: 94,300 Minnesotans worked in 2007 at the U.S. affiliates of foreign multinationals—up 7% from the 2002 level. • Exporting and investment abroad may be another option: “Foreign Markets Help Propel Some of State’s Biggest Players.” --Star Tribune, Neal St. Anthony, 10/26/10 • But will your firms’ global reach redound to Minnesota? Matthew J. Slaughter, ECOM 10/28/10

  26. Many of You Are Canaries in the Coal Mine • “U.S. multinational companies have long been among America's strongest firms. Although they comprise far less than 1% of U.S. companies, they account for about 19% of all private jobs, 25% of all private wages, 48% of total exports of goods, and a remarkable 74% of nonpublic R&D spending … [and] research shows that expansion abroad by these firms has tended to complement—not substitute for—their U.S. operations.” • “But there is no guarantee that the past will be prologue … Today the U.S. is in an era of global competition to attract, retain and grow the operations of multinational companies that it's never faced before.” • “U.S. multinationals are uniquely positioned to help America meet [current] challenges. But this will require far-sighted policy initiatives like liberalizing trade and protecting intellectual property … Will our lawmakers pay attention?” Matthew J. Slaughter, ECOM 10/28/10

  27. Will This One Be in the History Books? Matthew J. Slaughter, ECOM 10/28/10

  28. Reading Something Like This? Matthew J. Slaughter, ECOM 10/28/10

  29. It Will Depend on Who Holds the Pen • “In my more than 50 years in business, I cannot recall a time when there were so many daunting national challenges, with business engagement so lacking. This was not always so … It’s time to get off our butts, cure ourselves of an aggravated case of short term-itis … It’s time to do the right thing, not just to protect our kids and grandkids but to safeguard our remarkable country’s future.” • Peter G. Peterson, “Business Is Missing in Action,” BusinessWeek 11/16/09 Matthew J. Slaughter, ECOM 10/28/10

  30. Closing Thoughts • The United States faces difficult and monumental policy choices today that will shape economic performance for years into decades—and that, poorly handled, could curtail growth even in the short term, too. • For many of these problems, however, the feasible policy solutions are relatively straightforward. The constraint is not ideas about the solutions. Rather, it is leaders who will be willing to recognize and implement them. • From where will the necessary leadership come? Matthew J. Slaughter, ECOM 10/28/10

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