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Navigating the economy when the only certainty is uncertainty

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Modern Money

Matthew J. Slaughter, Associate Dean for Faculty and Professor of Management at the Tuck School of Business at Dartmouth.

Uncertainty. It is the one thing that has reigned supreme over the global economy for the last five years.

Economist Matthew Slaughter believes the near-term U.S. and global economic outlook remains complicated because it is affected by varied economic factors as micro as household balance sheets and as macro as the Federal Reserve’s quantitative easing program.

During his presentation at the Insured Retirement Institute’s Vision Annual Meeting, Slaughter touched on some of the issues he believes present unique challenges as individuals, corporations and policymakers try to navigate their way toward the land of economic certainty.

Stagnant boats

Slaughter, the Associate Dean for Faculty and Professor of Management at the Tuck School of Business at Dartmouth and a former member of the Council of Economic Advisers, says the phrase “a rising tide lifts all boats” does not apply to the current economic recovery. While many corporate balance sheets have risen, the boats of individual workers remain “stagnant.” More than 96% of U.S. workers have seen their income decline due to the financial crisis and global competition. Slaughter predicts a full job recovery might not be complete until 2020.

There is no playbook

Slaughter believes much of the macroeconomic uncertainty taking place in the U.S. and around the world comes from concern about interest rates and capital markets. The U.S. Federal Reserve has increased its balance sheet 303% since the financial crisis. To use a sports analogy, Slaughter says there is no “playbook” for how the Fed should unwind its quantitative easing. Slaughter quoted his friend Raghuram Rajan (aka… the new governor of the Reserve Bank of India), who says the playbook for quantitative easing seems to be to throw a “Hail Mary” and hope someone catches it later.

The U.S. is not Greece, but…

Fiscally, Slaughter makes it clear that the U.S. is not in as bad of shape as Greece. However, Slaughter notes the fiscal pressures the U.S. is grappling with look a lot like those Greece faced. How the U.S. copes with pressures like public pension obligations will be complicated, but Slaughter says one silver bullet would be to bring health care costs under control.