Barry Eikengreen in BHIMA: “Disastrous if an isolationist gets elected” – 2024-10-02 22:24:26

In the upcoming presidential election, the economy is a major issue for American voters. However, neither did the vice president Kamala Harris neither did the former president Donald Trump have presented a comprehensive program to tackle the enormous twin scourge of debt and deficit.

The internationally renowned American economist and historian of the American and international economy Barry Eikengreena professor since 1987 at the University of Berkeley in California, in an exclusive interview with “To Vima” sounds the alarm about the isolationism advocated by Trump and emphasizes the need for Harris to explain how she will finance her social policy.

At the same time, it emphasizes the salience of America’s international alliances in maintaining its global economic power and countering China, with which intense economic competition has turned into geopolitical competition.

What is the state of the US economy today and, looking at the big picture, what problems does the US have to face, both immediately and in the medium to long term?

“The US is performing well in terms of productivity growth relative to other advanced countries, and especially relative to the EU. America is a pioneer in the development of very successful Big Tech companies, and now in artificial intelligence, and has a thriving investment industry. of funds. The recent report by the former president of the European Central Bank, Mario Draghi, highlights that the EU is lagging behind in these areas.

The two big downsides for the US are inequality – not everyone is sharing in the gains from the aforementioned increase in income and productivity – and, secondly, the possibility that the public debt will become unsustainable in the future. The first is a chronic and ongoing problem. The second is a medium-long-term issue but no solution is visible on the political horizon.”

Inflation is a scourge for tens of millions of Americans. Are there steps a president can take to tame it, as the candidates claim?

“The short answer is ‘No.’ Inflation is dealt with by Federal Reserve (Fed) policies, not by the executive branch. The Fed has been slow to respond to inflation following supply chain disruption due to the coronavirus. But we should not hope for deflation that would bring prices back to 2020 levels, because that would cause major macroeconomic disruption. In any case, inflation today is a close second, having already fallen to almost 2%.

The president could push for rent control, but that would lead to housing shortages. Policies that set the pace of construction of new buildings fall under the purview of states and local governments, not the president or Congress. As for “profiteering”, most economists, myself included, consider it to be largely a fantasy”.

The two presidential candidates have expressed general positions on the economy. What would a victory for one or the other mean, especially for the middle class?

“Neither has a plan to reduce the deficit and debt, which pose the most serious threat to the US economy in the medium term. If Trump could implement his tax cut plan it would swell the deficit even further. THE

Harris’s social policies require significant increases in federal government spending. But her plan to raise corporate taxes and higher taxes for those with taxable income above $400,000 a year could fund at least part of her social policy.

As for the middle class (no one is called the working class in the US anymore – everyone is called the middle class!), Trump’s tariffs would lead to a significant increase in the cost of living and a drop in living standards. Harris’ proposals for a child tax credit, early childhood education and related social programs for the middle class are positive, as long as, I repeat, they can be funded.”

What is America’s place in the global economy, especially given the intense China-US competition?

“Clearly a fundamental transformation of attitudes in America about China has occurred. While US leaders and intelligence agencies once believed that cooperation and collusion were possible, today the prevailing view is that China is competing with America for geopolitical dominance.

“Most policymakers realize that America alone cannot compete with China economically and that the point is for the US to lead a Western alliance, as it did after World War II.”

How important is the US-EU economic relationship – is America turning its back on Europe and shifting its center of gravity to Asia?

“Under Obama, there was supposed to be a pivot to Asia, but Europe turned out to be so important and problematic that it didn’t allow that. With Russia attacking Ukraine, most US politicians – not all – realize that the US cannot turn its back on Europe and that if Russia were to prevail in Ukraine due to insufficient US support for Kiev, other European countries would be next. .

The concern now is not whether the US will turn from Europe to Asia, but that an isolationist president might turn his back on both continents.”

How do America’s international alliances affect its global economic power?

“Alliance policy has always been central to US global economic power. For example, in the 1960s, when the stability of the dollar-gold link was in doubt, West Germany and Japan, which valued the presence of American troops on their soil, pledged to defend the dollar by not converting their dollars into gold. in return for American defense support.

France, by contrast, a reluctant member of the US-led non-NATO alliance, cashed in its dollars to avoid losses. More generally, historically we have seen countries hold and use the currency of their alliance partners in their international trade – better to use the currency of an ally than a competitor or potential enemy who may block access.

Now, the point is to slow China’s acquisition of the latest semiconductor technology. This is not something America can do alone, since it does not have a monopoly on this technology. In fact, it follows and does not lead this sector. So cooperation with allies is necessary. That makes Trump’s skepticism toward NATO, Taiwan, and America’s European friends troubling.”