Goolsbee: American economy not “doomed;” recovery linked to innovation

November 13, 2014

 Austan Goolsbee speaks at Benedictine University on November 12, 2014.Lisle, Illinois ~ Former presidential economic adviser Austan Goolsbee, Ph.D., is convinced that those who predict doom and gloom for the U.S. economy are wrong. He espouses America’s undying ability to innovate as the sole driver for long-term upturn in the nation’s still weakened economy.

Goolsbee made these remarks to about 200 people on the main campus of Benedictine University where he was a guest speaker of the University’s Center for Civic leadership (CCL), which invites prominent public figures to speak about the importance of active citizenship and public service.

“The United States remains the most innovative, most entrepreneurial, most oriented around working, getting the job done and coming up with something new of any economy in the world, and that is the thing that made us the richest of all the advanced economies and that’s the thing that is going to save us,” Goolsbee said.

“It’s not going to be housing; it’s not going to be the Fed (Federal Reserve), the rest of the world or Washington, D.C.,” he added. “It’s going to be that.”

Goolsbee interjected a number of humorous anecdotes throughout the evening to better shape the picture of an at times dire economic outlook and abundance of political gridlock in Washington –
neither of which are laughing matters to those it harms.

As far as the outlook for the economy for the next 12 to 18 months, he gave a geometric analysis:

“In economics, we always believe that recoveries are V-shaped in the sense that the steeper that you go down, the faster that you come back,” Goolsbee said. “This was the deepest, steepest downturn of our lifetimes, so why didn’t it come shooting back?

“In the time I was in Washington, they went from describing the V-shaped recovery to then the Fed begin describing it was going to be a U-shaped recovery,” he added. “And then by the time I left Washington, they said it was going to be an L-shaped recovery, and they have since moved to Greek letters and Arabic script to describe the shape of the recovery.”

He said the current recovery isn’t like those in 1974 and 1985 because this latest economic crisis was created by abnormal growth driven by residential construction in the housing market and out-of-control consumer spending.

Austan Goolsbee speaks with audience members after his talk at Benedictine University in Lisle, Ill. “In the 2000s, the two primary drivers of economic expansion were residential construction and housing and consumer spending growing faster than income – so much faster that in two points in the 2000s, the personal savings rate in the United States went negative,” he said. “Meaning if you added up all the savings of everyone in America, it was less than nothing. Now, you don’t need to be a Political Science graduate from BenU to know that’s not sustainable.”

Goolsbee said the next year and a half won’t be much different because key developments need to take place first – developments that take time.

“If you look at the data, it is obvious that the United States is going to have to do more export-led growth, more capital investment-led growth, building of factories and buying of equipment,” he said. “We are going to need more innovation, more service sector, more education-intensive industry. It is transforming, but that is not a fast process.”

Goolsbee admitted that most economists aren’t popular people because the majority of opinions they give are negative and somewhat depressing. He gave the example of the secular stagnation theory, which states that 2 percent annual growth will be all that is possible in America.

Further, the recovery is not helped by the clear dysfunction among the leaders in the country’s dominant political parties. Don’t expect the housing industry or help from other world powers, and especially, do not expect the federal government to be able to save the American economy, Goolsbee said.

He said there is so much dysfunction and gridlock in Washington that they can’t fix typos in legislation, so don’t expect them to be able to fix the economy.

However, Goolsbee touted higher education as a critical component in driving the innovation needed to spur long-term economic growth.

“The biggest thing to be afraid of is our falling share of students graduating from college,” Goolsbee said. “The issues around college affordability and student loans and the college education system are critically important.”
For more information on future speakers or events at Benedictine University, visit ben.edu/ccl.

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Benedictine University is located in Lisle, Illinois, just 25 miles west of Chicago, and has branch campuses in Springfield, Illinois, and Mesa, Arizona. Founded as a Catholic university in 1887, Benedictine enrolls more than 5,000 students in 59 undergraduate and 23 graduate programs. Forbes magazine named Benedictine among "America's Top Colleges" for the seventh consecutive year in 2017. Accredited by the Higher Learning Commission (hlcommission.org). For more information, contact (630) 829-6300, admissions@ben.edu or visit ben.edu.

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