Prospects for 'new normal' of US economy
- By Yu Xiang
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E-mail China.org.cn, September 6, 2015
First, the US has yet to achieve revolutionary technological breakthroughs that could be commonly recognized worldwide, and the US is still in the stage of technology incubation and innovation. History has proved that the fundamental driving force for any big leap in productivity is progress in technologies, and the most powerful engine to break the constraints of the "new normal" is breakthroughs in major technological fields. However, technological progress could also be a double-edged sword. On the one hand, it could strengthen the potential for long-term economic growth; on the other hand, it could lead to worsening unemployment in the short term, and dampen laborers' enthusiasm for jobs. In the foreseeable future, the problem of low labor participation likely will continue to haunt the US labor market.
Second, several factors can be expected to weaken the momentum for higher inflation, and the US inflation level will continue to remain low. These factors include massive exploration of shale gas, lower wages for workers due to the big number of unemployed and non-registered unemployed, and lower production costs due to applications of technological achievements and digitized production. The US government has not completely lifted restrictions on energy export, which has led to a growing accumulation of gas and oil supply in the United States because of rising production in the US. According to a monthly oil supply report issued by the Energy Information Administration on June 30, the daily export volume by the US in April was only 586,000 barrels, but its daily output was as high as 9.701 million barrels. This meant that only 6 percent of the US energy output was exported. An accumulating oil-and-gas reserve has further driven down energy prices. With a historic deal on the Iranian nuclear issue, sanctions on Iran for oil exports would gradually be removed; with Iran expected to export more crude oil, there will be little reason for a big surge in global oil prices.
Third, institutional flaws with US systems, particularly with income distribution, are the fundamental causes for a widening wealth gap in American society. Institutional reforms, however, are always the hardest nuts to crack and call for tremendous efforts and longer time to complete. Major reforms are needed in income distribution, welfare, immigration policy and medical systems if the US wants to narrow and ultimately reverse the widening wealth gap and open up a channel for ordinary Americans to climb the social ladder. However, against the current political background of fierce competition between the Republicans and Democrats and the ongoing struggle between the White House and the Capitol Hill, the chance is extremely slim for Obama, the president with less than two years in office, to successfully carry out any substantial social reforms, and furthermore, any reforms will be subject to tremendous pressure.
Yu Xiang is an Associate Fellow at the China Institutes of Contemporary International Relations.
This article was first published at Chinausfocus.com To see the original version please visit http://www.chinausfocus.com/finance-economy/prospects-for-new-normal-of-us-economy/
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