Tag Archives: us economy

Can the U.S. Economy Boost the Global Economy?

Mar 9th 2015

 usboom

(http://www.wsj.com/articles/signals-from-u-s-china-show-how-much-global-economy-has-shifted-since-crisis-1425835340?mod=WSJ_hp_RightTopStories)

A month ago, I wrote a blog post about struggles of Chinese factories, arguing that China would soon recover its recession although its factories and industries have hard time because of significant decrease in the demand. I explained that China’s huge market power would influence on the global economy as well as its own economy so that China would have higher growth rate this year, fully escaping from the impact of the crisis. However, on Mar 8th, Wall Street Journal predicts that the improving U.S. and stabilizing Europe would cancel out the negative effects brought from the Chinese bad economy. From the article titled “Signals from U.S., China Show How Much Global Economy Has Shifted since Crisis,” Wall Street Journal describes the mismatch between China and the U.S., which is different from my previous perspective, and even contradicts my argument.

The U.S. economy is getting better with the augment of job gains while Chinese authorities are struggling to manage a gathering slowdown. Furthermore, the positive change in the U.S. job market increases the possibility that the Federal Reserve will raise the short-term interest rates. But, at the same time, the People’s Bank of China adds to a rate-cutting campaign, making the gap in the price of each country’s currency bigger; the U.S. dollar approximately appreciate 2% against China’s yuan. So, Wall Street Journal questions that the U.S. economy can power the global economy the way it did in decades ago.

It is obvious that the U.S. has the outstanding outcomes while other major countries (such as Europe, China, Brazil and Russia) still struggle. According to New York Times, the U.S. is expected to grow in 2015 at its fastest pace in a decade. However, as Bloomberg says in the article “The U.S. Economy Is Strong, But Is It Strong Enough to Power the World?,” I also wonder about the actual influence of the U.S. economy on the global market. “The U.S. can marginally help the world, but it cannot do it alone,” said former Deputy U.S. Treasury Secretary Stuart Eizenstat.

useconomy

(http://www.cnbc.com/id/101626562)

I believe there are numerous factors that why the U.S. cannot boost the global economy by itself. First, the U.S. is the only one country which has “good” signals in its economy. Although the U.S. has the biggest economy in the world (besides European Union), it only takes about 18% of the whole economy. Second, EU and Japan face deflationary threats while China has the slowest growth rate. It is clear that slumps of other countries undermine the U.S. positive economic effects since the U.S. is also a part of the global community. Furthermore, people should be aware that the U.S. economy can be affected by other countries’ poor conditions; already the U.S. dollar appreciates because many investors put their money into the U.S.

In conclusion, I do not think that the U.S. government (or Federal Reserve) does its economic policy poorly nor the U.S. economic situation is actually really bad. But, I think people should not be so optimistic about the current U.S. economic situation, anticipating a jump of the global economy. Chinese economy is still struggling and we should recognize that its slump could take longer time while the Europe is trying to against the deflationary effect. Can the U.S. economy boost the world? I would say it is not enough although it can be a good trigger.

Why does black opportunity matter for the future of the US economy?

For Martin Luther King Jr. day, I want to introduce the recent blog post by Richard V. Reeves as one evidence shows why black opportunity really matters for the US economy. He gives five facts depict how far we still have to go in terms of black opportunity (with some excerpts from his blog post):

  1. Half of Black Americans Born Poor Stay Poor

“Upward mobility from the bottom of the income distribution is much less likely for black than white Americans”

  1. Most Black Middle Class Kids Are Downwardly Mobile

“Seven out of ten black Americans born into the middle quintile fall into one of the two quintiles below as adults.”

  1. Black Wealth Barely Exists

“The median wealth of white households is now 13 times greater than for black households –the largest gap in a quarter century, according to analysis by the Pew Research Center.”

  1. Most Black Families Headed by Single Parent

“Black children are much more likely to be raised in a single-parent household, and as our own research suggests”

  1. Black Students Attend Worse Schools

“black students make up 16 percent of the public school population, but the average black student attends a school that’s 50 percent black.”

While people would agree that all five facts are important from many different perspectives, I have one specific reason that solving these problems can be a key for the US economic success in the future: potential growth rate. In “The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections”, Robert J. Gordon expects US potential growth rate is going to be far lower in the future, compared to a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. Specifically, he introduces “four headwinds” which are primary causes of his pessimistic forecast of the US economy: demographic shifts, educational attainment, inequality and national debts.

One may notice that those headwinds introduced by Gordon are closely related to the five facts given by Reeves. For example, if black people’s mobility would be improved and their wealth would grow fast enough to reduce inequality, that will achieve a higher income growth for bottom 99 percent of the income distribution in the US. Similarly, if black students will attend better school, that will surely take average educational attainment of American higher, thus productivity growth will also become higher than otherwise. Thus, more black opportunities could make the US potential growth higher.

Conclusion: if the both facts and arguments introduced above are correct, bringing more opportunities to black people should become a real interest of all Americans. Martin Luther King Jr. would be glad to see the US economic prosperity achieved by more opportunities brought to black people.