Economic Outlook 2019: 11 takeaways from Chicago Booth scholars

Economists discuss slowing growth, trade wars and why so many people are angry

Even as the stock market plunges, interest rates rise and a trade war with China looms, the economy won’t be “going off a cliff” this year—but growth may slow to a crawl.

Economic Outlook New York Panel
Economic Outlook, New York

That is the forecast from leading economists at the University of Chicago Booth School of Business speaking at sold-out Economic Outlook 2019 events in New York and Chicago in January.

Economic Outlook, established in 1954, is in one of the school’s most venerable traditions. Chicago Booth is renowned for faculty whose field-defining insights and analyses reshape the face of business, markets and the global economy. At the annual event, the strong perspectives of Booth economists provide alumni, business leaders and policy makers with the unique insights to evaluate trends and reframe their understanding of the world to come.

This year, four Chicago Booth scholars gathered to discuss the question, “Trade Wars, Deficits and Inflation: Rhetoric or Reality?”

Economic Outlook Panel
Economic Outlook, Chicago
 

The first event took place on Jan. 10 in New York featuring Randall S. Kroszner, Deputy Dean for Executive Programs, the Norman R. Bobins Professor of Economics and a former Federal Reserve governor; and Erik Hurst, the Duane Roth Professor of Economics, whose work focuses on labor markets. The second event was held in downtown Chicago on Jan. 17 featuring Kroszner; Austan Goolsbee, the Robert P. Gwinn Professor of Economics and former top economic advisor to President Barack Obama, and Raghuram Rajan, the Katherine Dusak Miller Distinguished Professor of Finance and a former governor of the Reserve Bank of India.


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Here are their insights for the year ahead:

Where is the economy headed in 2019?

“It’s hard to see the economy going off the cliff. Obviously, there are a lot of clouds on the horizon, whether it’s trade war issues, fiscal deficits, or the broader dysfunction in Washington. But I think the fundamentals for the U.S. right now are looking reasonably good.”  – Randall S. Kroszner

“What we're thinking about is how much is a slowdown going to look like when it happens, and what is the probability of that happening? I get the feeling we are similar to where we were in 1999 or 2000. Just like in 2000, we had a recession, but it was a very mild recession.” – Erik Hurst

“I still don't think we're out of the muck yet, and there are definitely risks of recession to be worried about.” – Austan Goolsbee

What are you worried about right now?

“One of the big issues today is the rising anger in different countries. Not just the West. It is also in India, in China. A lot of it has to do with jobs, not enough high-quality jobs. My worry is we are paying too little attention to this, saying that this is just part of the cycle. It’s not about the cycle. As economists, we need to think about what can we do to essentially diffuse this kind of anger and protect the system. Forget the ups and downs. The system itself is being challenged today. – Raghuram Rajan

“We're about maybe four or five months away from the longest expansion in post-war U.S. history. Even though things are looking pretty good, there seems to be a fair amount of uncertainty in the markets. That’s why little pieces of news are moving markets up and down.” – Erik Hurst

“Post-WWII in the U.S., there have been 14 recessions, and three things caused virtually all of them. The leading cause of recession has been Fed tightening. Second has been popping of bubbles or drops in asset values—like in 2000 or 2007. Third has been oil price shocks. So the two biggest causes of recession over the last 75 years are every bit on the radar as risks.  Add the category of ‘policy mistakes’—which have not caused many recessions in the U.S. but have outside the U.S—and you can see why I say that piling a trade war on top of a shutdown on top of Fed tightening and high asset valuations ought to at least a raise a yellow light.” – Austan Goolsbee

Will a trade war with China hurt the economy?

“One of the reasons why I think a trade war now, in a job sense, is not going to actually help displaced workers is that the manufacturing sector has changed fundamentally. It's more about automation now than it is about trade.” – Erik Hurst

“This trade imbroglio, many people now think, is going to be more harmful in the long run than initially thought, because it's depressing investment around the world. We are really much more interconnected than we think.”  – Raghuram Rajan

“The issue with China is much bigger than a trade war. If you look back 40 years, Japan was the China of its day. It had a rapidly growing economy and there were a lot of questions about enforcement of intellectual property. But China is not acting like Japan. In the old days, it was about making cars and selling cars. Now, it is largely about data. You can make a lot of technological progress today when you have data from an internal market of more than a billion people, even if you're not engaged with the rest of the world.” – Randall S. Kroszner

What is the Fed talking about these days?

“One of the big-picture issues the Fed is debating internally is whether the tax and regulatory reforms are going to lead to a sustained increase in productivity growth. If we have higher productivity growth, then wages can grow faster without putting broader inflation pressure on the economy.” – Randall S. Kroszner

“It's very hard to get productivity growth unless you have a lot of increases in the education of the labor force—which we can't really say we've had a lot over the last decade—or a lot of investment so that people are working with things that make them more productive. Ensuring productivity growth, I think, is going to be the real challenge going forward.”  – Randall S. Kroszner

Economic Outlook Hong Kong Panel
Economic Outlook, Hong Kong
 

The next Economic Outlook 2019 panel discussion will take place on Jan. 29 in Hong Kong featuring Kroszner;  Steven J. Davis, the William Abbott Distinguished Service Professor of International Business and Economics; and UChicago alumnus Richard Wong, Professor of Economics at the University of Hong Kong.