Justin Wolfers says expansions don’t necessitate recessions as long as there is good policy
Media outlets continue to search for red flags signaling the next recession, but for Professor Justin Wolfers there’s more reason for optimism. Wolfers was featured in a CNBC video titled “Justin Wolfers: Biggest risk to strong U.S. economy is Trump in the White House,” on Tuesday, February 12, 2019. In the piece, Wolfers clarifies what threats people should actually look for, as well as what the U.S. can do to perpetuate a consistent, growing economy.
The U.S. economy has been enjoying a long expansion since 2009, a fact that ironically makes people more anxious. But Wolfers says to rest assured that the “length of an expansion doesn’t have anything to do with whether or not a recession will happen,” saying that the risk is more on the shoulders of direct policy actions (or inactions). Pointing to the 1980s, Wolfers mentions that the Fed tried to “choke off” a recession too vigorously; today, however, he says they seem to operate with more caution. “All of that makes me something of an optimist,” smiles Wolfers, but continues by saying that “...we’re in a particular historic moment...I’m very worried that a small adverse shock could turn into something more calamitous with policy mistakes coming out of the White House.”
Unemployment numbers below four percent are encouraging, but Wolfers says we need to put some money aside to responsibly prepare if things “go south.” Unfortunately, though, Wolfers sees the opposite happening, saying that we’re witnessing “large budget deficits that are raising the debt substantially—that doesn't worry me of itself but what worries me is, if the next downturn hits, will we be in a position to expand spending? Will we be in a position to raise the debt, as would be required if we’re in the midst of a downturn?”
But do these precautions run counter to the optimism Wolfers stated? He says that saving while things are good one of the most basic economic lessons, and not to read into that preparation as forecasting a downturn. “The single best way to figure out where the economy is going next year is to figure out where it’s currently going,” he insists, going on to reference his home country of Australia. They have been expanding for 27 years, and this fact shows that for America, if the “economy is well run, if it’s not subject to outside shocks, (America) could easily continue expanding a whole lot further.”
Watch his interview on CNBC.com.
Justin Wolfers is a professor of public policy and economics. He also serves as a member of the Congressional Budget Office Panel of Economic Advisers. Wolfers' research interests include labor economics, macroeconomics, political economy, social policy, law and economics, and behavioral economics.