Professor Austan Goolsbee, former Chairman of the White House Council of Economic Advisers, argued demographic shifts and technological innovation in the United States will ensure a prosperous economic future at the Razin Prize and Economic Policy Lecture in the Lohrfink Auditorium on Wednesday.
Goolsbee’s plans rule out the consumer industry, oil and housing as viable industries for saving the American economy and instead propose that the demographic increases in population and innovation are the most likely saviors of the American economy.
During Goolsbee’s time as a member of President Obama’s cabinet, experts in Washington were predicting a V-shaped recovery, meaning the steeper the downturn in the economy, the faster it will rebound.
By the third year into the recession, economists altered their predictions to first a U-shaped recovery, signifying a slightly less marked rebound and then an L-shaped recovery.
Goolsbee said as the financial crisis was the result of a housing bubble, a V-shaped recovery was never possible.
“You can only have a V-shaped recovery when the economy can go back to doing what it was doing before the recession began. In other words, fundamentally not when you have a bubble that pops,” Goolsbee said.
Some economists have observed that more than 50 percent of the recessions since World War II have been caused either directly or indirectly by high oil prices. Goolsbee said although the price of oil is currently down, the American economy will not experience an oil-induced boom.
According to Goolsbee, falling oil prices indicate that demand for oil is also decreasing.
“I believe that the price of oil, like the price of all the other industrial commodities, is down because demand is down and [the market] is telling you, ‘we think emerging markets are going to be worse than what they’ve been,’” Goolsbee said.
Goolsbee said housing is similarly unable to save the economy. The Federal Reserve System annually forecasts a U-shaped recovery and 3.5 percent growth — something that has yet to happen.
“The Fed’s not the only one that’s messing that up but it’s the most prominent. Why? Because the forecast machine is inherently premised on reversion to the mean or return to normal,” Goolsbee said. “They don’t realize that they’ve implicitly defined the return to normal to be return to 2006 which is completely not normal, the peak of a bubble, and it’s not going to come back.”
Goolsbee said he remains optimistic about the American economy given the demographic increase in the United States, which presents a manageable problem.
“The U.S. population is projected to continue to grow to over 400 million, whereas in most advanced economies population will be shrinking or has already started shrinking,” Goolsbee said. “So the fiscal challenge facing U.S. is of serious magnitude but is of a manageable size in a way that it is not anywhere else.”
Goolsbee said American demographics, along with technology and innovation will in fact ensure long-term economic prosperity.
“The innovative capacity of human beings has proved totally unbounded, and that’s how we got richer and richer,” Goolsbee said.
Sam Ricciardi (COL ’16), who attended the event, said Goolsbee’s speech was reassuring.
“The content of the speech was surprising just because maybe I’m a cynic, I’ve always thought we are eventually doomed. But it was nice to have a smart person talk optimistically about the future for once,” Ricciardi said. “It’s the only time I’ve ever cut class for a speech, and I’d say it was worth it.”
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