By Mark Felsenthal
DENVER (Reuters) - To hear a number of prominent
economists tell it, it doesn't look good for the U.S. economy,
not this year, not in 10 years.
Leading thinkers in the dismal science speaking at an
annual convention offered varying visions of U.S. economic
decline, in the short, medium and long term. This year, the
recovery may bog down as government stimulus measures dry up.
In the long run, the United States must face up to
inevitably being overtaken by China as the world's largest
economy. And it may have missed a chance to rein in its largest
financial institutions, many of whom remain too big to fail and
are getting bigger.
On the one hand, Harvard's Martin Feldstein said he
believes the outlook for U.S. economic growth in 2011 is less
sanguine than many believe.
First, the boost to growth from government spending will be
drying up this year, he said. Renewal of expiring tax cuts is
no more than a decision not to raise taxes, and the impact of
one-year payroll tax cut is likely modest, he said.
"There's really not much help coming from fiscal policy in
the year ahead," he said. Woes from the dire situations of
state and local governments may actually be a drag on growth,
Growth got a lift from a lower saving rate in 2010, but
that probably will not last this year as households worried
about an uncertain future return to paring back debt and
socking more away, Feldstein added. Discouraging declines in
home values mean there is less to save from, he said.
"People are worried, so there's a strong reason for
precautionary saving," he said.
THE RACE IS ON
On the other hand, there is the race with China and the
dynamic Asian economies, including India. Most estimates put
the size of the Chinese economy on par with the United States
by the early 2020s, said Dale Jorgenson, also of Harvard.
Jorgenson sees Asian emerging markets as the most dynamic
in the world, eclipsing other emerging market contenders such
as Brazil and Russia with steady growth over the next decade.
"The rise of developing Asia is going to accompany slower
world economic growth," he said.
The United States will need to come to terms with the fact
that its prevalence in the world is fated to come to an end,
Jorgenson said. This will be difficult for many Americans to
swallow and the United States should brace for social unrest
amid blame over who was responsible for squandering global
primacy, he said.
MIT's Simon Johnson put it more bluntly, saying the damage
from the financial crisis and its aftermath have dealt U.S.
prominence a permanent blow.
"The age of American predominance is over," he told a
panel. "The (Chinese) Yuan will be the world's reserve currency
within two decades."
Johnson said he believes the United States has failed to
learn its lesson from the financial crisis and continues to
implicitly back its largest financial institutions.
"I'm concerned about the excessive power of the largest
global banks," he said. "Who are the government-sponsored
enterprises now? It's the six biggest bank holding companies."
To be sure, Raghuram Rajan, a former IMF chief economist
now with the University of Chicago's Booth School of Business,
could still envision an ongoing U.S. leadership role.
Nothing proceeds in a straight line, he said, and there are
many pitfalls along the way even for dynamic Asian economies.
"I would say the age of American dominance may be nearing
an end. But America as the biggest mover will be in place for a
long time," he said.
(Reporting by Mark Felsenthal; Editing by Maureen Bavdek)
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