Will the U.S. economy power a global recovery?
Why some economists are feeling pretty bullish
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The 21st century so far has produced "two decades of overwhelming inequality and underwhelming growth," said Neil Irwin at The New York Times, "but there are some reasons to think things are about to get better." With pandemic relief legislation and the vaccine rollout, the economy has the potential "to burst out of the starting gate like an Olympic sprinter." Americans have saved an extra $1.8 trillion during the pandemic to "spend in the months ahead." Corporate America should be primed to "hire, invest, and expand to take advantage of the post-pandemic surge in activity." The Federal Reserve is confident about running the economy hot and "repudiating past strategies of pre-emptively slowing the economy to prevent an outbreak of inflation." And key technological innovations — from artificial intelligence to more efficient batteries — seem to be "just at the point" where they are ready to help companies unleash stronger growth.
Some economists are also "exceptionally bullish," said Dion Rabouin at Axios. Goldman Sachs thinks the U.S. economy could grow by 8 percent this year, the largest expansion since 1951. That outlook outpaces other Wall Street banks' expectations, which average around 4.7 percent. If Goldman turns out to be right, the U.S. gross domestic product — essentially, the size of the economy — would hit about $22.6 trillion, "marking a full recovery after the economy shrank 4.1 percent in 2020."
Excuse me, said Gary Shilling at Bloomberg, but "where will this growth come from?" Capital spending is still "subdued by business uncertainty and excess capacity," and foreign trade "remains a drag" as China continues to fall short on promises it made to buy American exports. "The economy's fate rests in the hands of consumers," but so far they've been more likely to set aside money for a rainy day. Households saved 71 percent of the money from their last stimulus check. This time they could keep back even more. "Stay-at-home households have already loaded up on goods," so spending will likely be "concentrated on services like restaurant meals and travel." And if women don't re-enter the workforce, trillions of dollars could be "left on the table" over a few years, said Leslie Norton at Barron's. School closings and job losses in the service sector — where women are disproportionately employed — caused "women's participation in the labor market in 2020 to drop to a 33-year low."
If the U.S. does reach some of the current growth projections, it will be "a remarkable achievement," said Matt Egan at CNN. China expects GDP growth of 6 percent, and the expectations being floated now would mean the U.S. would replace China as "the biggest growth driver on the world stage." That would have global implications, said the Financial Times in an editorial. The Paris-based Organization for Economic Cooperation and Development said last week that the U.S. recovery alone could "lift global income by 1 percent this year." There is some fear that "the Federal Reserve will be forced into increasing rates to choke off inflationary pressure," triggering higher rates globally and making it harder for some countries to dig out from their debt. But for advanced economies, "faster growth in the U.S. is almost entirely positive."
This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.