Not Good for U.S.

Economy In Next Decade

Mark Felsenthal

To hear a number of prominent economists tell it, it doesn't look good for the U.S. economy, not this year, not in 10 years. eading thinkers in the dismal science speaking at an annual con!ention offered !arying !isions of U.S. economic decline, in the short, medium and long term. This year, the reco!ery may bog do"n as go!ernment stimulus measures dry up. #n the long run, the United States must face up to ine!itably being o!ertaken by $hina as the "orld's largest economy. %nd it may ha!e missed a chance to rein in its largest financial institutions, many of "hom remain too big to fail and are getting bigger. &n the one hand, 'ar!ard's Martin Feldstein said he belie!es the outlook for U.S. economic gro"th in (011 is less sanguine than many belie!e. First, the boost to gro"th from go!ernment spending "ill be drying up this year, he said. )ene"al of e*piring ta* cuts is no more than a decision not to raise ta*es, and the impact of one+year payroll ta* cut is likely modest, he said. ,There's really not much help coming from fiscal policy in the year ahead,, he said. -oes from the dire situations of state and local go!ernments may actually be a drag on gro"th, he said. .ro"th got a lift from a lo"er sa!ing rate in (010, but that probably "ill not last this year as households "orried about an uncertain future return to paring back debt and socking more a"ay, Feldstein added. /iscouraging declines in home !alues mean there is less to sa!e from, he said. ,0eople are "orried, so there's a strong reason for precautionary sa!ing,, he said.

T'1 )%$1 #S &2 &n the other hand, there is the race "ith $hina and the dynamic %sian economies, including #ndia. Most estimates put the si3e of the $hinese economy on par "ith the United States by the early (0(0s, said /ale 4orgenson, also of 'ar!ard. 4orgenson sees %sian emerging markets as the most dynamic in the "orld, eclipsing other emerging market contenders such as 5ra3il and )ussia "ith steady gro"th o!er the ne*t decade. ,The rise of de!eloping %sia is going to accompany slo"er "orld economic gro"th,,he said. The United States "ill need to come to terms "ith the fact that its pre!alence in the "orld is fated to come to an end, 4orgenson said. This "ill be difficult for many %mericans to s"allo" and the United States should brace for social unrest amid blame o!er "ho "as responsible for s6uandering global primacy, he said. M#T's Simon 4ohnson put it more bluntly, saying the damage from the financial crisis and its aftermath ha!e dealt U.S. prominence a permanent blo". ,The age of %merican predominance is o!er,, he told a panel. ,The 7$hinese8 9uan "ill be the "orld's reser!e currency "ithin t"o decades., 4ohnson said he belie!es the United States has failed to learn its lesson from the financial crisis and continues to implicitly back its largest financial institutions. ,#'m concerned about the e*cessi!e po"er of the largest global banks,, he said. ,-ho are the go!ernment+sponsored enterprises no": #t's the si* biggest bank holding companies., To be sure, )aghuram )a;an, a former #MF chief economist no" "ith the Uni!ersity of $hicago's 5ooth School of 5usiness, could still en!ision an ongoing U.S. leadership role. 2othing proceeds in a straight line, he said, and there are many pitfalls along the "ay e!en for dynamic %sian economies. ,# "ould say the age of %merican dominance may be nearing an end. 5ut %merica as the biggest mo!er "ill be in place for a long time,, he said.