Citi Economist: The U.S. Is the Least Prepared Major Economy for the Huge Changes Ahead
Citigroup's chief global political analyst, Tina Fordham, and Chief Economist Willem Buiter have offered their outlooks on the global state of affairs at the World Economic Forum's annual meeting in Davos. They did not paint a sunny picture.
Fordham portrayed a world that was seeing rising interstate conflict, increased terrorism, political systems under strain from the refugee crisis, and of course the growing appeal of populist politicians (on the right and left) in Europe and the U.S, or what what Fordham dubs Vox Populi risk.
What Buiter had to say was no more comforting.
He sees a world of mediocre growth, a growing (not shrinking) output gap, and policymakers largely unable to deal with these challenges.
Buiter doesn't see much value in further traditional monetary easing to boost economic growth and suggests that the world needs to rediscover fiscal policy, or ideally some combination of monetary and fiscal policy, to boost demand (something akin to helicopter money). But for political reasons in the U.S. and Europe, this isn't in the cards.
In fact, Buiter says that because of political dysfunction in the U.S., America is the least-prepared economy for the major economic changes coming in the years ahead.
Via e-mail, he spelled out his concerns: "Dealing with the growing inequality and possible growing job losses caused by the Fourth Industrial Revolution will require a much larger redistributive role for the state. A guaranteed minimum income and universal state-funded health care, funded out of taxes would not raise many eyebrows in Europe. It would meet huge resistance in the U.S., where there only is a decent social safety net for the old."
In other words, economic changes that will be brought on by technology necessitate major redistributional efforts. And due to U.S. political resistance, that is unlikely to happen.
All of which, of course, leads back to Fordham's Vox Populi risk.