Four Economists Predict the Shape of the Recovery

Nouriel Roubini
Professor at New York University and chairman of Roubini Global Economics
We expect a decade of growth at or below potential. Policy responses to this crisis have been very aggressive and have steered the economy onto a path toward recovery. But we believe it will be a U-shaped recovery rather than a V. Private demand remains weak and income generation sluggish. Some crucial assets (notably housing, which provided collateral during the credit-fueled but wageless recovery that followed 9/11) will likely continue to deflate throughout 2010. Households are saving more and spending less, and that will last for several years.

Even when private demand comes back and the recovery becomes self-sustaining, Americans will have to deal with the releveraging of the government, which has overextended itself. That will require measures to bring deficits back under control—a politically difficult mix of higher taxes and lower public spending. Like it or not, the high cost of servicing the national debt will put a lid on growth for years to come.

Jeremy Siegel
Finance professor at the Wharton School at the University of Pennsylvania
I do not go along with the consensus that the U.S. faces a long period of stagnation in the coming years. In fact, I believe that over the next decade the U.S. economy can grow faster than the 3.2 percent average rate it has achieved over the past half century. That is because in the long run, economic growth is based on advances in productivity, and productivity is based on discovery and innovation. With the communications revolution, there has been an explosion in the number of researchers and entrepreneurs from around the world who are tackling difficult problems in energy, conservation, and medicine, and will make technological breakthroughs that will enhance our standard of living.

Laura Tyson
Professor at the Haas School of Business at the University of California, Berkeley
There is a wide range of economic-growth forecasts over the next five years, reflecting the fact that the Great Recession of 2008–09 was broad and deep, and that the loss of wealth was substantial. The optimistic forecasts predict an average growth rate of about 3.5 percent for the next five years, while more pessimistic ones predict an average growth rate between 2.5 and 2.8 percent. Unfortunately, for now I find the pessimistic forecasts more convincing. And even the optimists predict that the unemployment rate will remain in excess of 5 percent through the end of 2015—in other words, this recovery will share the "jobless" character of the last two recoveries from recession in the U.S.

Mohamed El-Erian
CEO of Pimco
After a strong first half of 2010, we expect U.S. growth to average a subdued 2 percent per year over the following four years. As a result, unemployment will decline only slowly, deficit concerns will persist, and the country's social safety nets will come under some pressure. This muted outlook for the U.S. economy is a function of three major post-crisis themes that will play out over the next few years. First, the current strong cyclical tailwinds, driven by the huge government stimulus and the inventory cycle, will confront significant structural headwinds related to overindebtedness, deleveraging, reregulation, and international trade tensions. Second, the globe will experience a continued migration of growth and wealth dynamics to systemically important emerging economies and away from those countries that overrelied on financial engineering as a driver of economic expansion. Third, a post-crisis increase in the risk aversion of both the private and public sector will serve to further lower the speed limit on growth, as a trade-off for a lower probability of another major accident.