By Robert
Reich
Economic forecasters exist to make astrologers look good, but
I’ll hazard a guess. I expect the U.S. economy to sputter in 2016.
That’s because the economy faces a deep structural problem: not enough demand for all the goods and services it’s capable of producing.
American
consumers account for almost 70 percent of economic activity, but they won’t
have enough purchasing power in 2016 to keep the economy going on more than two
cylinders. Blame widening inequality.
Consider:
The median wage is 4 percent below what it was in 2000, adjusted for inflation.
The median wage of young people, even those with college degrees, is also
dropping, adjusted for inflation.
That means a continued slowdown in the rate of family formation—more young people living at home and deferring marriage and children – and less demand for goods and services.
At
the same time, the labor participation rate—the percentage of Americans of
working age who have jobs—remains near a 40-year low.
The
giant boomer generation won’t and can’t take up the slack. Boomers haven’t
saved nearly enough for retirement, so they’re being forced to cut back
expenditures.
Exports
won’t make up for this deficiency in demand. To the contrary, Europe remains in
or close to recession, China’s growth is slowing dramatically, Japan is still
on its back, and most developing countries are in the doldrums.
Business
investment won’t save the day, either. Without enough customers, businesses
won’t step up investment. Add in uncertainties about the future—including
who will become president, the makeup of the next Congress, the Middle East,
and even the possibilities of domestic terrorism—and I wouldn’t be surprised if
business investment declined in 2016.
I’d
feel more optimistic if I thought government was ready to spring into action to
stimulate demand, but the opposite is true. The Federal Reserve has started to
raise interest rates—spooked by an inflationary ghost that shows no sign of
appearing. And Congress, notwithstanding its end-of-year tax-cutting binge, is still
in the thralls of austerity economics.
Chances
are, therefore, the next president will inherit an economy teetering on the
edge of recession.
ROBERT B. REICH is Chancellor’s Professor of Public Policy at
the University of California at Berkeley and Senior Fellow at the Blum Center
for Developing Economies. He served as Secretary of Labor in the Clinton
administration, for which Time Magazine named him one of the ten most effective
cabinet secretaries of the twentieth century. He has written fourteen books,
including the best sellers “Aftershock, “The Work of Nations,"
and"Beyond Outrage," and, his most recent, "Saving
Capitalism." He is also a founding editor of the American Prospect
magazine, chairman of Common Cause, a member of the American Academy of Arts
and Sciences, and co-creator of the award-winning documentary, INEQUALITY FOR
ALL.