Rising Uncertainties in the U.S. Economy

CAMBRIDGE: America’s economy is entering a risky phase. The conditions that underpinned its long boom are weakening. It is a fool’s game to try to predict changes in public sentiments. Nonetheless, good economic reasoning can help us to anticipate the economic turbulence ahead.

The US boom has been a mix of reality and wishful thinking. The reality is that technological advancement, combined with flexible and dynamic labor and capital markets, led to a rapid rise in productivity growth and the spread of new technologies. Lives in the US changed remarkably for the better recently, with improvements in the service economy, new medical technologies, access to information, and the like.

Wishful thinking transformed economic gains into visions of easy wealth. The New Economy – which is real – became the “invincible” economy where risks are discounted, stocks always rise, world economic conditions are always beneficial, and budget surpluses continue forever. Optimism manifested itself in two ways. First, American stock markets rose giddily – adding $8 trillion in paper wealth to owners of US equities in a five-year period. Second, American consumers increased spending as a result of their paper wealth, reducing or eliminating their savings from income because their stock market wealth would protect them in the future.

To continue reading, please log in or enter your email address.

To continue reading, please log in or register now. After entering your email, you'll have access to two free articles every month. For unlimited access to Project Syndicate, subscribe now.


By proceeding, you are agreeing to our Terms and Conditions.

Log in


Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.