By Jackson Brainerd
Economist Christopher Thornberg, founding partner of Beacon Economics, presented an optimistic outlook for the U.S. economy at the NCSL Fiscal Leaders Seminar last month in Scottsdale, Ariz.
The seminar brought together more than 80 state legislators and legislative fiscal directors from 34 states to discuss pressing fiscal issues facing states.
Citing statistics from the U.S. Bureau of Economic Analysis, Thornberg noted that personal income, employment, tax revenues, and business activity are all on the rise and predicted that “the value of your home will be better next year than it was this year.” Other promising nationwide trends include a 4 to 4.5 percent growth rate for auto retail sales, all-time high levels of industrial production and, since 2010, a drop in the unemployment rate from 5 to 3 percent for those with a bachelor’s degree or higher..
In the fiscal policy arena, Thornberg argued two main points. First was that education, the cost of housing, access to transportation, and communication technology drive business growth more than tax rates. Second, the lack of public investment by the federal government is one of the biggest drags on the U.S. economy.
Thornberg used his home state of California as an example to support his argument. “Yes, we have bad taxes. Yes, we have bad policies. But no one is fleeing the state. That’s not what drives economies.” Instead, he maintained that California’s biggest economic problems are related to the cost of housing, citing Proposition 13 and the California Environmental Quality Act as impediments to growth and infrastructure development. He asserted that the people who are leaving California are not high-income residents seeking lower-tax havens, but low-income residents who cannot afford to live in the state.
He was hopeful about the state of the finance world as well, critiquing the fear of a potential stock market bubble in light of healthy numbers from primary drivers of stock market gains, such as corporate profits and interest rates. Corporate profits are 35 percent higher since the start of the Great Recession, and interest rates are remarkably low. While some believe the Federal Reserve Bank’s use of quantitative easing is artificially raising the price of assets and creating a bubble, Thornberg said the vast majority of the money spent by the Fed never made it to the economy: “For every $10 of quantitative easing, $9 sits in the bank in the form of reserves.”
Thornberg did point out several potential hazards on America’s road to recovery, including the trade deficit (our exports have not been growing as fast as imports) and a “wobbly” global economy. He noted the United States’ top trading partners—Canada, Mexico, China, Japan and the United Kingdom—are all economically stable at the moment. China, however, has major long-term problems—inequality, corruption and a disproportionately large elderly population—it will need to address.
Other areas of economic concern he mentioned included healthcare reform, long-term pension entitlements issues, and the growing inequality of income and wealth.
Jackson Brainerd is a research analyst in NCSL’s Fiscal Affairs program.
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