JIF Insights: Former U.S.
Economic Adviser:
“Expansions Don’t
Die of Old Age”


Jon Hilsenrath, chief economics correspondent for The Wall Street Journal (left), and Glenn Hubbard, past chairman of the U.S. Council of Economic Advisers.

Glenn Hubbard, former chairman of the U.S. Council of Economic Advisers, projected 2 percent U.S. GDP growth for the next year – a bit more optimistic than the 1.8 percent consensus estimate of professional economic forecasters.

The U.S. economic recovery remains in record-setting territory, and though the pace of real GDP growth has slowed – from 3.1 percent in the first quarter of 2019 to 2 percent in the second and 1.9 percent in the third – there are few signs the expansion is fading. According to the Federal Reserve Bank of St. Louis, the current growth rate is consistent with the economy’s potential growth rate, which most economists estimate at between 1.75 percent and 2 percent.

“Expansions don’t die of old age,” Hubbard told attendees at Triple-I’s Joint Industry Forum. “They die of some shock, some policy action that strangles them.”

Asked by Jon Hilsenrath, chief economics correspondent for The Wall Street Journal, whether President Trump’s 3 percent growth target was realistic, Hubbard said it could be achieved, “but it would require some really outsized assumptions.”

“You’d need 2 percent-plus productivity growth,” he said, adding that weak population growth and continued low labor force participation are greater obstacles to reaching such an optimistic target.

Despite technological advances that might be expected to drive productivity, the Organization for Economic Cooperation and Development (OECD) reports, “productivity growth has declined sharply” in recent decades. Low labor force participation is associated with lower GDP and tax revenues, according to the Congressional Budget Office (CBO). It’s also associated with larger federal outlays, because people who aren’t in the labor force are more likely to enroll in federal benefit programs. Labor force participation has been weak since the end of the recession and, despite upticks in 2016 and 2017, the CBO expects it to remain so until 2027.

Slow and steady

“Barring anything unforeseen,” Hubbard said he doesn’t believe a downturn is imminent. He pointed to countries like Australia that have experienced decades-long slow, steady expansions.

“One of the reasons this expansion has gone on for so long,” Hubbard said, “is that it has not been as robust throughout as other expansions.”

He pointed to the “lower for longer” interest rate environment as a risk area for the insurance industry, noting that difficulty earning spread could lead to “pockets of excess risk taking.” While many have warned about this risk,  insurers have shown they can earn profits while maintaining reserve adequacy. As Triple-I recently reported, 2019’s third-quarter $48.1 billion net income after taxes for the property/casualty industry was the second highest since Q3 2007 and only slightly below the highest profit ($49.4 billion), in  Q3 2018.

2020 Elections: Don’t Be ‘Overly Conventional’

On the U.S. elections, Hubbard said “If you’re focused on the economy and economic variables, the President should have a very good chance of being re-elected.”

“I think, though, it’s a mistake to be overly conventional,” he continued.  “That kind of analysis may have led people astray in calling the 2016 race. I look at underlying currents in the economy, and I see a current of many people doing very well, others doing less well – neither side is completely playing to both of those groups.”

Hubbard said he “wouldn’t rule out” a Democratic presidential win, even if the candidate came from the far Left.

“When I ask business leaders about uncertainties they’re worried about, this is number one on their list,” Hubbard said, “because a scenario that delivers a far-Left Democratic President also delivers a Democratic Senate and could mean very different policies.”

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