Election unlikely to change longterm economic growthBy W. WINSTON SKINNER
No matter who is elected president on Tuesday, the result is unlikely to spell economic doom – or nirvana – in the longterm.
John B. Jung Jr., chief operating officer at BB&T Capital Markets, talked about national economic issues at the Economic Forecast Breakfast at the University of West Georgia in Carrollton Tuesday morning. Jung shared a chart showing economic factors – which translated into an improved standard of living – for more than a century.
Jung said gross domestic product per capita in the United States has been charted since 1871. There has been a steady rise during that period, marking the increasing standard of living for people in the United States.
"What do we want in this country? The highest standard of living in the world," Jung said. "For almost the past 150 years, we have done an astounding job."
Jung noted that growth has taken place in spite of several economic downturns of various severity, wars and political leaders of various philosophies and strengths.
"Through good and bad, we've been able to grow the standard of living in this country," Jung said.
He also said the country is still functioning. He noted the number of schoolbuses he followed as he came to the breakfast.
The United States has relatively low fuel costs, even if people grumble about the price of gasoline. "If you don't like what we're paying for gas, go to England," Jung suggested.
The nation has a good infrastructure.
"In generally, we'e got a highly educated population," Jung said, suggesting the American ethos of working hard is part of the country's success. "The Europeans think we're absolutely crazy," he said, but the tendency to work and work hard is a key to the rising living standards the nation has experienced.
Jung then address why the situation does not "feel better." He said U.S. recessions since 1950 have tended to last about 14 months. Real GDP is up, but many economic indicators "have not recovered anywhere like they have after any other recession" in memory, Jung said.
"That's real," he said. "That makes a real difference." Americans are used to seeing houses being built and shipments of new products headed up the interstate by this point in a recession.
The high levels of debt Americans had when the 2007 crisis struck were higher than at the beginnings of others recessions, except for the one in 1929 which had repercussions for years.
For the past half century-plus, "consumers spent us out of the recessions" after 12-14 months, Jung said. "They did that because they had debt capacity."
Following the 2007 crisis, "the consumer didn't do that," Jung said. "They had already borrowed the money."
Making the economy hum again requires two things to happen simultaneously – consumer debt needs to be reduced to "between 40-60 percent of GDP" and consumers need to increase spending.
Consumers have repaired $2 trillion in debt since the start of the economic decline, but they did not spend. People are looking at their money and "making those decisions every day" about whether to spend, save or pay debt.
Jung said many people are sitting on cash, even though they are earning little or no interest on it. They are doing so to have liquidity to use the money when they need or want.
Jung noted that when young adults bought a car after World War II, they went to the car dealership and purchased whatever they could get for the money they felt they could spare from savings. Most adults today have gotten comfortable with looking for an affordable payment when they car shop.
From 1946-2007, the economy was marked by rapid growth, low unemployment and inflation and aggressive consumer spending. The "new economy" features limited growth, high unemployment, deflation and lower consumer spending. "Some things structurally have changed," he said.
Americans are going to have to learn about "navigating the new economy," Jung suggested.
Jung said about 5 percent fewer Americans are working now than at the peak of employment. "Those nine million people are not paying taxes. Do they feel confident about spending? No," he said. "This is a big deal."
Jung said 6.3 million people have been unemployed more than six months – a figure that has probably never been more than a million in the past several decades.
He also talked about the power of American productivity. "The U.S. worker is the most productive worker in the world, Germany is number two. Nobody's number three," Jung said.
American and German workers are relatively expensive, but they are extremely productive.
"We're making more cars in Detroit today than we were 20 years ago, and we're doing it with less people," Jung said. "We work hard in this country. We really do."
He also said Americans are working harder than ever. "That is driving this productivity," he said. "The longterm jobs are coming back, and we're already seeing it."
Jung pointed to the new Subaru plant in Indiana and said jobs are returning from Mexico and India. That trend is "really, really positive longterm," Jung said. "That will drive jobs."
Real U.S. wage growth has been stagnant for about 20 years. The 2007 collapse wiped "about 6 trillion ... off our collective balance sheets" in terms of housing values, Jung siad.
"This $6 trillion has disappeared. That's a big deal. For awhile it was a big deal to the banks, but it's still a big deal to the consumer," Jung said.
Many people planned to use equity that no longer exists to send children to college or for other purposes.
Still, Jung said all those trends have both positive and negative impacts. A house once worth $230,0000 is now valued at $160,000.
"Who is excited about this? My children. The next generation is going to get a shot at" home ownership because of the drop in value, Jung said.
"Housing prices will continue to adjust. They're going to adjust until we get back where our housing is affordable," he predicted.
While the stock market has been relatively flat for the past 12 years, the Standard & Poors index has more than doubled, mainly because larger companies are now part of what Jung called a "24/7 global economy."
The S&P has done well "because of the global economy," he stated.
Coca-Cola is working to sell soft drinks in places like India, China and Burma. The global nature of business "has worked out really well for the U.S. economy," he said.
Those changes, however, mean Americans need to be concerned about economic conditions in other parts of the world. Europe is the country's top trade partner followed by Latin America.
"We' don't want there to be a crisis in Europe because they buy a lot of things from us," Jung said.
While Jung said the results of Tuesday's election are not likely to have a major impact on the longterm economic picture, there are some points of concern. Since the 1950s, the U.S. government has generally borrowed about 2 percent of GDP.
During the past four years, the average has been 10 percent. "We got out of the recession by doing it, but it's not sustainable. Current federal borrowing is not sustainable," Jung said.
He said the national debt has been fueled by decisions made across the political spectrum. "We've been electing people on the blue team, and we've been electing people on the red team, and they've all been borrowing money," Jung said. "We can't continue to do this. We're going to have to start thinking about this."
He said decisions must be made about whether the government has a responsibility to create jobs, whether the government should try to keep housing prices from falling and deciding how much regulation is proper in a world where American companies have competitors all over the globe.
"If we're trying in a growing economy, who does Georgia compete with? It's not South Carolina. It's Vietnam," he said. "Georgia competes with India."
The American economy is "going to find its own level" regardless of who is elected to what office, Jung said. "The economy works pretty well when we let it work, and we're seeing that."
He said tax code reform is needed, and he said spending on defense and entitlements, the two largest sectors of the budget, must be addressed.
"The tax on the wealthy that the president is proposing" will generate $80 billion – enough to run the U.S. government a week.
A proposed increase in the inheritance tax would create enough extra revenue to run the government for one day. "These are just political sidebars," he said.
He said the polarized political system needs a big dose of compromise. "The largest economy in the world hasn't had a budget in the past four years. We're going to have to make some decisions. We're going to have to move forward," Jung said.
"Not everybody's going to get everything they want, but if you put some certainty back into the economy," Jung said, "people will start to spend some money."