Consumers are reluctant to spend because of new technologies that could eventually replace many or most of their jobs, therefore creating economic stagnation, economist and Nobel laureate Robert Shiller warns.
“My own theory about today’s stagnation focuses on growing angst about rapid advances in technologies that could eventually replace many or most of our jobs, possibly fueling massive economic inequality,” he wrote for Project Syndicate.
“People might be increasingly reluctant to spend today because they have vague fears about their long-term employability – fears that may not be uppermost in their minds when they answer consumer confidence surveys. If that is the case, they might increasingly need stimulus in the form of low interest rates to keep them spending,” wrote Shiller, a 2013 Nobel laureate in economics.
“Since around 2012, the equity and housing markets have been hitting new records. But the same sort of thing happened regularly in the Great Depression: the news media were constantly reporting record highs for one economic indicator or another. A Proquest News and Newspapers search for the 1930-39 period finds 10,315 articles with the words ‘record high.’ Most of these stories are about economic variables. In 1933, at the very bottom of the depression, record highs were reported for oil production; wheat, gold and commodity-exchange-seat prices; cigarette consumption; postal deposits; sales or profits of individual companies; and so forth,” wrote the co-creator of the Case-Shiller Index of U.S. house prices.
“Such rosy reports may give people some hope that things are improving overall, without allaying the fear that they could still suffer an economically catastrophic event,” Shiller wrote.
“Barring exceptionally strong stimulus measures, this sense of foreboding will limit their spending. Narrative psychology has taught us that there is no contradiction: people can maintain parallel and conflicting narratives at the same time. When people are imagining disaster scenarios, policymakers must respond accordingly,” Shiller wrote.
Shiller isn't the only warning about economic fears for the future.
For his part, Nobel Prize-winning economist Angus Deaton said Trump's economic policies risk creating growth that mostly benefits the rich and aggravates income inequality in the United States.
Trump was swept to power on promises of help for poorer Americans but Deaton said his proposals to roll back regulations on finance and industry and cut healthcare benefits would mostly help corporate groups with political influence.
Trump's plans to cut taxes and raise trade barriers, if enacted, might give a short-term income boost to some workers but would not deliver the long-term growth that is essential for mitigating the effects of inequality, he said in an interview, Reuters reported.
"I don't think any of it is good" for addressing income inequality, said Deaton, a Princeton University professor, who won the Nobel Prize for economics in 2015 for his work on poverty, welfare and consumption.
However, Newsmax Finance Insider Stephen Moore takes issue with such narrow-minded thinking.
"The naysayers are dead wrong. Start with the tax plan that Larry Kudlow and now-Treasury Secretary Steven Mnuchin and I put together for Donald Trump during the campaign," Moore wrote in his blog.
"That plan cuts U.S. business taxes from 35 percent (the highest in the world) to 15 percent (which would be among the lowest rates in the world). This will lure more jobs and businesses back to the United States. Apple CEO Tim Cook says the Trump tax plan could bring $250 billion of Apple profits back to these shores, where it can be reinvested in Michigan, Ohio, California and so on rather than Ireland, China or Europe," Moore wrote.
"The plan also simplifies the tax system and cuts the taxes of 26 million small businesses, which create about two-thirds of the new jobs in America. Without healthy, prosperous employers, you can't have healthy, well-paying jobs," Moore wrote.
"This alone can boost economic growth by as much as 1 percentage point per year and will generate about $3 trillion more tax revenue over the next decade," wrote Moore, a distinguished visiting fellow at The Heritage Foundation.
(Newsmax wire services contributed to this report).