Bankers and Economists Fear a Spate of Threats to Global Growth

Bankers and Economists Fear a Spate of Threats to Global Growth
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Both Janet L. Yellen, the Fed’s chairwoman, and Mario Draghi, president of the European Central Bank, gave speeches that focused on issues other than monetary policy. Ms. Yellen spoke instead about the dangers of financial deregulation; Mr. Draghi discussed the dangers of protectionism.

The world’s major economies are all growing for the first time since the crisis, but the expansion is tepid and fragile.

The most immediate threat is posed by the looming deadline for Congress to raise the federal “debt ceiling,” allowing the government to borrow money to pay its bills. Federal debt is widely viewed as the world’s safest investment, and even a temporary break in payments could cause a financial crisis.

Congressional leaders and administration officials insist that the necessary legislation will pass before the government reaches its borrowing limit sometime in October, but President Trump on Thursday described the situation as a “mess.”

Mr. Powell, a Republican who helped persuade his party to raise the debt ceiling in 2011 and 2013, warned in a pair of interviews on the financial networks CNBC and Fox Business that a default would deliver “a major shock to the economy.” That is “not something we need right now,” he added dryly. Mr. Powell also emphasized that the Fed could not shield the economy from the consequences.

Much of the formal discussion was devoted to the global turn toward protectionism. The trend is highlighted by Britain’s decision to withdraw from the European Union, and by Mr. Trump’s scattershot threats to impose restrictions on imports to the United States. It can also be seen in a decline of trade as a share of global economic activity over the decade since the crisis.

“People are concerned whether openness is fair, whether it’s safe and whether it’s equitable,” Mr. Draghi said.

Economists have long preached that trade among nations is all of those things, and many at the conference view the backlash as a public relations problem.

Trade, in this view, has become a scapegoat for issues including the decline of manufacturing in developed economies and the rise of income inequality. The evidence suggests technological change has played the predominant role in reducing manufacturing employment; globalization is a bit player by comparison.

Alan Blinder, an economist at Princeton University, observed that people generally accept job losses that they attribute to technological change but are angered by job losses that they attribute to trade policies. The economic effects are basically identical; the political consequences are remarkably different.

Referring to the founding father of the economic analysis of trade, Mr. Blinder said, “We economists think that David Ricardo got it mostly right 200 years ago, and a lot of people think he got it badly wrong, and we haven’t convinced them in 200 years.”

But there is an emerging mountain of evidence that economists also have significantly and systematically understated the disruptions caused by increased trade for workers, particularly in manufacturing, their families and their communities.

“The backlash against globalization does not arise because people doubt trade’s overall benefits,” said Nina Pavcnik, a professor of economics at Dartmouth College. “The backlash reflects that trade makes some individuals worse off.”

The idea that developed nations should focus on reaping the benefits of trade, and then worry about offsetting the costs, has produced large benefits, particularly for the wealthy — and large uncompensated costs, particularly for the workers.

Peter Schott, an economist at Yale, said researchers need to understand why the workers have struggled to find new jobs. While the shock of increased trade with China was a one-time event, Mr. Schott said such research could shape public policies that would help workers displaced by other shocks, like improved technology.

Ms. Yellen devoted her keynote address at the conference to a careful defense of the changes made after the financial crisis that aimed to improve the resilience of the American financial system. The Trump administration is pushing to loosen those ties, and Ms. Yellen warned that anything more than modest changes could be bad for the economy.

“Enhanced resilience supports the ability of banks and other financial institutions to lend, thereby supporting economic growth through good times and bad,” she said.

Mr. Draghi touched on the same theme at the end of his speech.

“There is never a good time for having lax regulation,” he said.

Even the protesters gathered outside the conference changed their tone. The liberal group Fed Up was founded four years ago for the purpose of urging the Fed to pursue faster economic growth. This year, however, members of the group donned “Yellen wigs” and held a rally in support of a second term for Ms. Yellen.

Ms. Yellen’s four-year term as Fed chairwoman ends in early February, and Mr. Trump has said he is considering whether to replace her.

The protesters said they were not satisfied with the economic recovery. The share of American adults without jobs remains higher than before the crisis, and the numbers are significantly worse among minorities. Wage growth remains weak.

But they are worried that Ms. Yellen’s departure would make things worse. A new Fed chairman might be inclined to raise interest rates more quickly. They see a longer-term risk, too, that less regulation would lead to another economic crisis.

“Yellen’s work is not done,” said Apryl Evelyn Lewis, 34, from Charlotte, N.C. “I don’t agree with the Fed’s recent decisions to raise rates. But Yellen’s record over the years shows that, overall, she cares about people like me.”





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