Michael J. Boskin is T.M. Friedman Professor of Economics and Senior Fellow, Hoover Institution, Stanford University. Speaking to Srijana Mitra Das, he discusses the US economy, global risks — and stable growth in India:
Q. What is the core of your research?
A. My academic work has been around the public sector, taxes, spending, deficits, debt and their effects on growth and other economic outcomes. While most of my work is on the United States, I also look at world economic growth, other nations’ performance, the efficiency and equity of government programs, inequality and global financial trends.
Why do you write that America faces its most dangerous situation today after World War II?
Since the Cold War, there was the notion of ‘Mutually Assured Destruction’ with both the Americans and the Russians having large nuclear arsenals. But today, we have a far more complicated landscape. Back then, the Soviet Union had a very dangerous military — but a very weak economy. Today, China has a very strong economy — with rising military aggression.
Meanwhile, President Putin has invaded Ukraine while Iran, a theocratic dictatorship, is inching closer to a nuclear weapon, their stated aim being annihilating Israel. We’ve seen Iran’s proxies launch attacks against American bases recently. The world is a tinderbox now and the US must stay alert to where the Chinese, for instance, can focus their military strategies. Similarly, we must manage the Red Sea situation where Houthis are disrupting traffic. We also have the eastern Ukraine battle — any of these conflicts could blow up into something much worse. All these are also occurring at a time when America hasn’t tended properly to its military — inflation-adjusted military spending is lower now than in 2010. Yet, we have far more demands on our security today than we did then.
What are your recommendations for US military spending?
The US should spend more — but wisely. We have big fiscal problems, so we need to spend intelligently and discard many regulations that stifle flexibility. We’re shooting down inexpensive drones, for instance, with extremely valuable missiles — we need to do more off-the-shelf buying, reduce restrictions and restore our defence-industrial base, so defence contractors are again assured of demand from us or our allies.
Back in 2020, you wrote of how the American economy was working for Donald Trump — what are your thoughts in this election year?
The American economy is doing pretty well right now. I was one of the few economists who didn’t predict a recession last year. I suggested the large additional spending by President Joe Biden would cause inflation and slow growth but not generate recession as the labour market would hoard labour, most firms getting skilled workers with difficulty and being reluctant to lay them off. The lay-offs were disproportionately in the tech sector which had overestimated its growth.
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When the labour market stays stable, so does consumer spending. Large government funds also came into play — so, we’ve had a pretty good growth quarter.
Why isn’t this boosting the White House incumbent?
President Biden’s term was also marked by the highest inflation no American under 60 had seen in their working lives. In some months, it exceeded wage growth — many in the American blue-collar working class got lower inflation-adjusted income, which they blame President Biden for. Of course there is a lag involved and if the economy keeps improving, with shrinking inflation and reduced interest rates, that feeling could wear off.
However, it’s also very hard to buy a home now as mortgage rates have more than doubled. Importantly, more and more people in the US are pessimistic about their economic future — in recent polls, many said they felt their kids won’t be as well-off as they are. This shows a deep pessimism that is hard to overcome. Presidents are important to the economy but there’s a lot more going on with headwinds, tailwinds and the global situation. Biden is getting blamed for what went wrong — and not receiving much credit for what went well.
There is also the immigration crisis here where changes in the interpretation of laws have allowed in millions who normally wouldn’t have qualified. This is becoming a huge issue with immigrants disrupting cities, being housed in schools, etc. Biden’s age and flubs are also not helping — while he isn’t much younger, Donald Trump does appear more vigorous.
Amidst global turmoil, how do you analyse India’s economy?
India is one of the most remarkable places in the world. If you drew concentric circles on a map with India in the middle, you’d see many difficult and dangerous places around. India, with its diversity, has remained a democracy. It’s also been growing at 6% to 8% for some time now. By developing economy standards, its inflation rate is also not unreasonable. I think India is a ray of hope — many improvements are taking place in its economy now and foreign companies are looking to invest. I’d say to India’s economic authorities, ‘You’re doing many things right but do search for the areas that could go wrong if growth slows — and put in shock absorbers now.’ Views expressed are personal
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