Two former presidential advisers debated this morning over the future of the economy in the Unites States. One of these advisers, according to historical studies, stated that the US could see as much as a decade of slow growth.
By Russ Britt
June 17, 2011, 1:26 p.m. EDT
SAN FRANCISCO (MarketWatch) — Two former presidential advisers faced off Friday in San Francisco over the nation’s economic future, with one saying the U.S. could see a decade of slow growth, while the other argued it doesn’t have to be that way.
Laura D’Andrea Tyson, who chaired the President’s Council of Economic Advisers during the Clinton administration, said historical patterns show that when the U.S. is hit by a major economic downturn such as the one that struck in 2008, it can take 10 years to pull out of it.
“History suggests that the recovery period will be long and difficult,” Tyson told a crowd at the annual gathering of health professionals, put on by the insurance-industry trade group America’s Health Insurance Plans. “The new normal might be the old normal, which is that it takes time to recover from difficult economic slides.”
Tyson said that a slow recovery will mean elevated unemployment for just about as long. That’s how long it would take to recoup enough jobs to get the unemployment rate down to a more normal level of 5%, given the strongest job-addition rates of the past decade. Even with highest job-growth rates of the 1990s, it would still take five years to get back to 5%, she said.
A number of factors are contributing to the prolonged struggle, including difficulties in Japan and the Middle East, the latter of which is driving up oil prices. Emerging nations are growing two to three times faster than the U.S.; China is now the engine for growth, Tyson said. Tax relief has been offset by higher energy prices. For the last decade and a half, the nation has consumed more than it can afford, thanks largely to widespread use of homes as cash machines. And the nation’s high debt is spiraling out of control, thanks mostly to health-care cost increases. A growth rate of roughly 3% a year isn’t really enough to drive meaningful economic prosperity.
But R. Glenn Hubbard, who chaired the council for the first two years of the George W. Bush administration, said it doesn’t have to be that way.
“We can grow faster, and it does not have to be a lost decade,” Hubbard told the crowd. “We principally have a spending problem.”
Most of the nation’s troubles center around Social Security, Medicare and Medicaid — the three big drivers of federal spending, Hubbard said. Improving efficiency in those areas will help. And, while increasing tax revenue may be one solution, it is not the only answer, and focusing on the wealthy won’t cure all ills, he added.
“Solutions needs to be progressive, but they have to be broad-based,” Hubbard said. Tax reform is needed to ensure a fair structure.
And in health care Hubbard echoed the sentiment of Republican presidential hopeful Tim Pawlenty in calling for a consumer-driven system where costs are more transparent. As health care accounts for 17% of GDP, it is too big to ignore, he added.
“In the other five-sixths of the economy,” he said, “we do have broad market access that enables changes to occur.”
Russ Britt is the Los Angeles bureau chief for MarketWatch.
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