by Robert Reich

[elleng]

Several of you have asked me to predict what will happen to the economy in 2016. I'll hazard a guess but beware: Economic forecasters exist to make astrologers look good.

I expect the U.S. economy to sputter in 2016. That's because the economy faces a deep structural problem: not enough demand for all the goods and services it's capable of producing.

Begin with the fact that American consumers account for almost 70 percent of U.S. economic activity. But they won't have enough purchasing power in 2016 to keep the economy going on more than two cylinders.

Blame widening inequality, in which most economic gains continue to go to the top. The median wage is 4 percent below what it was in 2000, adjusted for inflation. At the same time, the labor participation rate -- the percentage of Americans of working age who have jobs -- remains near a 40-year low.

The median wage of young people, even those with college degrees, is also dropping, adjusted for inflation. That means a continued slowdown in the rate of family formation -- more young people living at home and deferring marriage and children -- further reducing demand for goods and services.

The giant boomer generation won't take up the slack. Boomers haven't saved nearly enough for retirement, so they're being forced to cut back expenditures.

Exports won't make up for this deficiency in demand. To the contrary, Europe remains in or close to recession, China's growth has slowed dramatically, Japan is still on its back, and most developing countries are in the doldrums.

Business investment won't save the day, either. Without enough customers, businesses are not going to step up investment. Add in uncertainties about the future -- who will become president, the makeup of the next Congress, perils in the Middle East, even the possibilities of domestic terrorism -- and I wouldn't be surpassed if business investment declined in 2016.

I'd feel more optimistic if I thought government was ready to spring into action to stimulate demand, but the opposite is true. The Fed has started to raise interest rates -- spooked by an inflationary ghost that shows no sign of appearing. And Congress, notwithstanding its end-of-year tax cutting binge, is still in the thralls of austerity economics.

Chances are, therefore, the next president will inherit an economy teetering on the edge of recession.

What do you think?

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[SusanCalvin]

1. Teetering? Recession?

Plus the PTB don't care what happens to the plebes as long as there's enough of us to prop up the PTB's lifestyles.

[Warpy]

2. He's right, of course

This country's economy is not going anywhere but the doldrums as the purchasing power of the 99% continues to drop. Government can't pick up the slack because it's in hock up to Montana for all Stupid's stupid wars, which show no sign of ending, because low wages mean low tax revenues. Right wing scaremongers will continue to shriek about the terrible burden Social Security poses to the nation's government because low wages mean low Social Security contributions. Smaller businesses will continue to close every month, putting more people out of work, because the demand just isn't there. The country itself will continue to be at risk because we lack enough basic industries to survive a trade war, let alone a big shooting war, and the latter seems to be setting itself up.

Until and unless we get all the conservative dead wood out of our government and manage to get the minimum wage at least doubled, none of this has a chance of changing. Welcome to the third world.

Meanwhile, much of the third world has gotten the idea and is moving left.

[elleng]

3. Right.

[SusanCalvin]

4. That's about the size of it. nt

[JDPriestly]

6. Excellent analysis.

[JDPriestly]

5. Reich is right. The economy is out of balance.

Money available for investment exceeds demand for the goods that investment can produce.

Foreign markets do not replace the demand needed from American consumers because the dollar is not valued so as to make American products affordable to enough people in foreign markets.