By Dr. Mike Walden
North Carolina Cooperative Extension
When I give presentations about the economy around the state, I always leave time for questions and answers. Of course, the questions vary based on the group, the location and the most recent economic news.
However, although I’ve not kept specific records, I have noticed several economic questions that appear to be repeated quite frequently in my meetings. In fact, there are four in particular that I am often asked. This tells me that, among all the existing economic issues, these may be he top ones on many people’s minds.
So here are the four questions, along with a summary of my answers.
Do we have to pay off the national debt?
The national debt is now $18 trillion and climbing. Expressed on a per-person basis, this is $56,000 for every woman, man and child in the country. People understandably worry about how the average person could ever pay off this obligation.
The good news is that no one is ever going to be presented with a bill for $56,000. Unlike private debt, which has a payment deadline, the national debt does not — for the simple reason that the debt is owed by the nation, and the nation continues, we hope, over an infinite number of generations. So both current and future citizens fund the national debt.
Just like for private debt, the important worry for the national debt is the “carrying cost” – interest paid on the debt as a share of income. With interest rates at near historic lows, the recent news on this measure has been very good, with the share barely budging. But if interest rates rise, and if federal borrowing accelerates, then the share will jump.
As with all federal fiscal issues, the question always comes to spending and taxes. To reduce federal borrowing, spending must be pared and/or taxes must be increased. So far, on this there is little consensus.
Can we predict future jobs?
Why can’t we just predict what kinds of jobs the economy will need, structure our educational system to train people for those jobs, and then – as a result – solve our employment and education issues all in one stroke?
This is a suggestion I often hear at my presentations, and it certainly makes sense. There’s just one problem: It’s very, very difficult to know specifically what types of jobs will be needed in the future.
Although it’s hard to see on a year-to-year basis, the job market changes dramatically over decades. More than 25 percent of today’s jobs didn’t exist a generation ago, and some experts estimate 50 percent of today’s jobs won’t be here in another generation.
To complicate matters, we don’t really know what new jobs will take the place of the old jobs. Much will depend on new industries that are developed and on how people spend their income in the future. History shows that both will likely surprise us!
Why can’t the tax system be reformed?
I can give a one-sentence answer to this question: because there’s no consensus on what “reform” means. To some, reform means higher tax rates for upper-income households; to others, it means lower rates for all. Targeted tax deductions and credits are favored by many, whereas others want none of these. Some want businesses and corporations to pay more; others want them to pay less.
Every provision in the tax code has backers. So changing the tax code inevitably brings opposition. When changes are made, it means the proponents of change have out-voted the opponents. Yet, as experience has shown, those changes may last only until the next election.
Will the dollar remain the world’s top currency?
Since World War II, the U.S. dollar has been considered the world’s “reserve currency.” This means U.S. dollars are accepted for payment almost everywhere in the world, and interest rates on U.S. investment securities are slightly lower due to their dollar backing.
But the end of fixed exchange rates and the gold standard, along with the rise of the euro and the Chinese economy, has raised questions about whether the dollar will continue its top status. Could we have a future world where the euro or the Chinese yuan is the top currency?
We could, but most economists don’t think it’s around the corner. Indeed, recently the U.S. dollar has strengthened against most world currencies, as the health of the U.S. economy looks better than the economies of both Europe and China. Yet, there are pluses and minuses to every economic change. A stronger dollar makes imports, like oil, cheaper, but exports from our companies to foreign buyers have suffered as they have become more expensive.
So, these are my “top four” economic questions as revealed by my recent statewide audiences. You decide how both the questions and answers match with yours.