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Markets and Economy

Averting Disaster: 4 Big Threats to Economic Prosperity

Threats to the economy in 2020 include the spread of the coronavirus, rising student loan debt, the growing federal budget deficit and climate change.

Key points:

  • Long-term threats to the economy appear to be multiplying
  • Four of the major crises include the spread of the coronavirus, rising student loan debt, the growing federal budget deficit and climate change
  • Though all of these concerns are serious, there are ways to limit their impact on the economy

Containing the coronavirus: The coronavirus has already taken a toll on China’s economy, but the virus appears unlikely to have a lasting impact on global commerce.

  • The coronavirus outbreak curtailed travel over the Chinese New Year celebration, among other disruptions, which could shave as much as 2 percentage points from China’s first-quarter GDP growth.
  • While cases have been found in more than two dozen countries, over 98 percent of infections—and the majority of fatalities—have been concentrated in mainland China.
  • The loss of life is devastating, but the widespread economic impact should be limited; while new diseases are frightening, the coronavirus appears less threatening than the seasonal flu.

Slowing student debt growth: Student loan debt grew to $1.45 trillion in the third quarter of 2019, but the backdrop is favorable for most borrowers—and a college education remains a worthwhile investment.

  • Despite the large volume of student loan debt, its annual rate of growth has actually tapered below 5 percent, down from 10 percent a decade ago.
  • For most college graduates, a degree is still a worthwhile investment. College grads earn more, enjoy a lower unemployment rate, and stay in the workforce longer than those without a higher education degree.
  • Most households’ overall debt burdens are manageable. Debt-to-income ratios are at a 20-year low, and, thanks to low interest rates, monthly payments are taking a smaller share of disposable income than ever before.

Outgrowing the US federal budget deficit: The federal deficit is on an unsustainable path. Solutions will require a break from the traditional fiscal playbook—including policy shifts to grow the workforce and increase productivity over the long run.

  • The federal deficit already stands at 4.5 percent of GDP, and entitlement programs like Social Security and Medicare will continue to widen the national debt for decades to come.
  • Growth is the most viable solution. Raising enough tax revenue to cover the shortfall would likely cripple the economy, and sharp benefit cuts would be catastrophic for many seniors. But if the nation’s GDP growth rate were to accelerate by a single percentage point, the deficit would become manageable.
  • Immigration reform could immediately fill the nation’s 6.5 million job openings with skilled workers in the prime of their careers, growing the tax base for decades to come.
  • Investments in telecommuting technologies could free up existing transportation infrastructure for more productive use.
  • Initiatives to improve the healthcare system could yield long-term benefits by allowing people to enjoy longer, more productive careers.

Fighting climate change through economic prosperity: Counterintuitively, economic development is the best way to head off environmental crises.

  • Older Americans will recall the pollution that once afflicted cities like Los Angeles and Pittsburgh. As the US grew richer, conservation became a priority. The Clean Air and Water Acts of the 1970s only became viable after the nation had achieved a high standard of living.
  • Developing nations are unlikely to embrace environmental protection while their populations are struggling—but as standards of living rise in the developing world, controlling pollution will likely become a pressing concern.
  • Economic development is the best route to environmental protection.

Jim Glassman, Head Economist, Commercial Banking

Jim Glassman

Jim Glassman, Head Economist, Commercial Banking

Jim Glassman is the Managing Director and Head Economist for Commercial Banking. From regulations and technology to globalization and consumer habits, Jim's insights are used by companies and industries to help them better understand the changing economy and its impact on their businesses.

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