By Katie Murar
Medill News Service
There are many signs that point to the U.S. economy improving following the financial crisis a few years ago, but the global economy hasn’t fully bounced back, said Council of Economic Advisors member Jay Shambau.
In a panel discussion Saturday at the SABEW 2016 annual conference, Shambau explored the ways in which slow global growth is playing out in the United States and discussed how the global economy is faring almost seven years after the financial crisis.
“The economy has added almost 15 million private sector jobs over 74 straight months of growth, the unemployment rate has been cut in half, and output is about 10 percent higher than what it was at it’s business cycle peak before the recession,” Shambau said. “Recovery has certainly taken place in the United States, but as we look around the world there are still some obvious scars from the financial crisis.”
The working age population is still growing at a slower pace since the recession, which is a clear reason why global growth is more sluggish than economists’ expectations, Shambau said.
“There are two related phenomena that connect both supply and demand and help understand why growth has come in in a more disappointing fashion: investment and productivity,” he said.
The world is not investing enough in the economy and that has led to investment levels being around 20 percent below where they should be, Shambau said. These low levels have exacerbated low productivity growth.
“Unemployment rates have come down, we’re back to below pre-crisis unemployment rates, but output growth has been disappointing,” he said. “Something is not adding up there, and that’s productivity.”
According to Shambau, there has been a global slowdown in productivity and there hasn’t been enough capital deepening, meaning output grew faster than investment and so there is less capital for workers to be working with. These issues have led to a vicious cycle in which low demand leads to low investment, which generates lower productivity growth. In turn, this lowers people’s expectations for the future, causing low demand and bringing everything full circle.
Although the global economy is currently experiencing this negative cycle, Shambau said there are still reasons to be optimistic about the economy.
“Anytime you have a negative feedback cycle, there’s no reason that can’t become a positive feedback style,” Shambau said. “A pickup in growth leads to higher investment levels and higher demand, resulting in a more positive cycle.”
