‘People don’t like Obama, that’s clear’: what’s next for the American economy?
From Obamacare to quantitative easing, we talk to economist Ryan McMaken about what’s next for America’s economy
The future of the US economy is anything but certain with presidential elections looming. World Finance meets with Ryan McMaken, Editor of Mises Daily and The Free Market, to discuss what’s next for the world’s number one superpower.
World Finance: So Ryan, where does the US economy sit among other superpowers today?
Ryan McMaken: The US economy is still very strong compared to the rest of the world, and that seems to be the big word since 2008 or so, is: the US doing fine compared to other major economies in the world.
Most people who are living in the economy, middle class people, are aware things are not going that well compared to, say, how they were a decade ago or 15 years ago. People sense that employment is not great, that they’re not getting wealthier, but they look out to the rest of the world and the conclude, well things could be worse. So that’s very much the attitude that seems to be prevailing right now.
World Finance: Looking at the forthcoming elections, and the economy is obviously one of, if not the most important issues that Americans care about. What will Obama try to push through in his last two years?
Ryan McMaken: He doesn’t really have to do anything. All he has to do is say, hey, I had these great things I was going to do and the Republicans and Congress killed all of our great plans. Primarily the administration is going to rely on the central bank, and that’s where you’re going to see most meaningful policy.
The US economy is still very strong compared to the rest of the world
World Finance: And the contenders for the next presidential office, what are they likely to do?
Ryan McMaken: So much of politics right now in America is really just about personal issues. People don’t like Obama, that’s clear. Will that translate into a problem for the Dems in 2016? Quite possibly not.
Remember, Obama was re-elected two years ago, so there’s not a real reason to believe there’s a major ideological shift in this country. And so 2016 doesn’t look to be any sort of revolutionary watershed year. The economy will be lacklustre, and both parties will claim they can do better, and with the old guy going out, they’ll both be able to make that case.
World Finance: Unemployment is down below six percent, the economy is growing, and sentiment is positive in the markets. So why do so many Republicans feel Obama has had an unsuccessful presidential experience?
Ryan McMaken: Well the numbers look pretty good if you look at just the headline numbers in terms of employment and economic growth. But when you start to drill down a little bit more and you look at how many people are participating in the labour force, those numbers are at 30-year lows. You look at growth in wealth for real households, you look at people’s ability to afford an apartment or a home that they consider to be satisfactory, and there’s a lot of dissatisfaction there.
World Finance: How much of an issue is the withdrawal of quantitative easing?
Ryan McMaken: Well it looks like it’s going to be a major issue over time, but if we look at really what the fed has been doing this year, even as they started to cut back on QE and were saying they’re going to stop it, they were finding new and different ways to keep liquidity flowing into the market, there’ no reason to believe the fed is going to start selling off all of their assets. They’re just going to find other more subtle ways to continue to really put more money into the economy.
So is the money supply going to go down? Certainly not, that’s going to continue to expand. The fed is going to continue to have a very active role in making sure asset prices continue to go up.
So much of politics right now in America is really just about personal issues
World Finance: Obama was instrumental in hiring Federal Reserve head Janet Yellen. So how successful has she been?
Ryan McMaken: We refer generally to the Yellen-Bernanke bank at this point. After the 2008 crisis, the policy has been all the same year-to-year. More liquidity, increasing the money supply, really making sure that banks aren’t ever in a position where they might become insolvent, and a very close relationship between major banks, too big to fail institutions and the central bank and Congress, all to make sure there’s no real risk of any major economic disturbance.
Now, can they successfully manage that? They claim, hey, it’s no problem, we’ll end QE, we’ll start pulling all of that excess money out of the economy so there’s no inflation, but even the fed fully admits they’ve never done that before, they have no idea, they have no real plan at all. So people are just kind of hoping the fed knows what it’s doing, but there’s no actual evidence to believe that that is the case.
World Finance: With respect to Obamacare now, which has been a bone of contention, the aim was to get six million uninsured insured. But it has to have a knock-on cost to businesses, so has that incremental cost to mid-to-large size business thwarted growth, or at least delayed economic recovery in the United States?
Ryan McMaken: Well certainly it’s increased labour costs significantly, and so that’s a big problem for both employers who are looking to expand, and for people who want to get a job, especially more low paid people who don’t really have an alternative of different healthcare plans that they might be able to take advantage of.
The larger political issue of course is, what are they going to do about it to reverse that, and the Republican party has no plans whatsoever for actually undoing Obamacare, and it just looks like this is part of the economic landscape now, is that healthcare costs are going to go up, and quality may be going down. But in terms of major political changes to it, that’s not a discussion.
The economy simply is not existing on its own two feet
World Finance: What are the major challenges to America’s economy moving forward?
Ryan McMaken: Just dealing with the present crisis, which continues. It’s the same crisis that began in 2008, and that is an anaemic economy, an economy that is highly regulated now. To refer to it as a free market economy is really stretching the bounds of credibility at this point, because so much of the economy depends on a very active central bank.
The economy simply is not existing on its own two feet and employment continues to be weak as people leave the workforce, people are retiring early, and young people are not entering the workforce into fields that they receive training for.
World Finance: So the American Dream for most, is it now an even more distant reality?
Ryan McMaken: It’s very difficult for a lot of people. It’s definitely not getting any easier. If you happen to be well politically connected in an industry that benefits from help from the central bank or the treasury, then you might be going alright, but if you’re in an industry that’s all on its own, you might be looking for a lot more trouble in the future.