DANA POINT, Calif. — A former top federal economic official is “cautiously optimistic” about the United States' long-term economic outlook.
Michael J. Boskin, who served as chairman of the President's Council of Economic Advisers under former President George H.W. Bush, offered that assessment while discussing the economy and economic outlook for 2013 and beyond during the Property Casualty Insurers Association's 2012 conference in Dana Point, Calif., on Monday.
Some pessimists say the nation will never get through its current economic problems, said Mr. Boskin, who is now a senior fellow at the Hoover Institution and a professor of economics at Stanford University.
He agreed that “we have serious, serious problems.” But he said the country has faced supposedly “insurmountable problems” in the past, such as the fear of Japanese economic competition in the 1980s, and has overcome them.
Mr. Boskin discussed the roots of current economic crises in the United States and elsewhere during his presentation, noting some of the risks that confront the world at large. In addition to banking and sovereign debt risks and regulatory policy, geopolitical risks also exist, he said, using the oil shortage brought about by a crisis with Iran as an example.
He said the United States has advantages over Europe, including lower taxes, a less bloated welfare state and remaining a global leader in technology and productivity.
“We have an opportunity in the next few years to right this ship,” he said.
The current economic situation in the United States differs from what it has faced before, he said. Previous sharp recessions have been followed by impressive recoveries, but the current downturn has been followed by an “anemic” recovery, he said.
Mr. Boskin noted that the most recent data shows the economy growing by a rate of 2%. “Normally, the economy would be growing 4%, 5%, 6%,” he said.
Some opportunities for recovery include the housing sector and the fact that government “policy has been so poor and expectations so meager” that there would a considerable positive impact from “more rational policy.” Another factor cited by Mr. Boskin is the amount of cash “on the sidelines” not being deployed by companies.
Additionally, Mr. Boskin said he believes there has been “way too much government involvement in the economy” and added that there will be “lots of disruptions” while returning to a normal economy.
Mr. Boskin faulted an “unprecedented surge” in federal spending, “the greatest since World War II.” He cited Europe as having the problems that could face the United States, saying that in much of Europe, “too many people receive too much” in government benefits.
He said the United States could be “eventually heading” toward conditions similar to those in Greece and Japan, in terms of public debt as a percentage of gross domestic product.
Still, “while we have some serious challenges to get through, I believe we will get through them,” he said, adding that the United States has managed to deal with serious economic challenges before.
Noting the potential impact of Tropical Storm Sandy on the country, Mr. Boskin also praised the insurance industry “for all you do for the economy.”