While both Mr Harvey and Mr Knoop think the economy has made a strong recovery this past year, they also have concerns about the future. One of Mr Harvey's biggest concerns is the risk of unexpected inflation, not necessarily in the short term, but in the years to come.
When governments borrow money to inject the economy with additional spending, as they have done, it can trigger a rise in both interest rates and the prices of ordinary goods. For Mr Knoop, his long-term concern is about how uneven the country's economic recovery has been. Some people have thrived, while others have struggled, often along long-established fault lines of inequality such as race and gender, he says.
Meanwhile, many lower-paid workers in the service industry have seen their jobs disappear or their hours cut back, or if they are essential workers, they've had to put their health and safety on the line to go to work.
This widening inequality is bad news for the economy, Mr Knoop says, because it negatively effects so many aspects of our society, such as health, wealth, education and crime.
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So, how is it that two experienced, knowledgeable economists study and analyze the same data and each comes up with a different forecast for the nation's economy?
Why do these experts so often disagree with one another? As we will see, there's no simple answer; there are many reasons for economists' differing opinions. The principal disagreement among economists is a matter of economic philosophy.
There are two major schools of economic thought: Keynesian economics and free-market, or laissez-faire , economics. Keynesian economists, named after John Maynard Keynes , who first formulated these ideas into an all-encompassing economic theory in the s, believe that a well-functioning and flourishing economy may be created with a combination of the private sector and government help.
By government help, Keynes meant an active monetary and fiscal policy , which works to control the money supply and adjust Federal Reserve interest rates in accordance with changing economic conditions.
By contrast, the free-market economists advocate a government "hands-off" policy, rejecting the theory that government intervention in the economy is beneficial.
Free-market economists—and there are many distinguished advocates of this theory, including Nobel Memorial Prize winner Milton Friedman —prefer to let the marketplace sort out any economic problems.
That would mean no government bailouts , no government subsidies of business, no government spending explicitly designed to stimulate the economy, and no other efforts by the government to help what the economists believe is the ability of a free economy to regulate itself.
Both economic philosophies have merit and flaws. But these strongly advocated and conflicting beliefs are a major cause of disagreement among economists. Moreover, each philosophy colors the way these warring economists see both the macroeconomy and microeconomy.
As a consequence, their every pronouncement and the economic forecast are influenced in large measure by their respective philosophical biases. Besides their elementary philosophical differences, disagreements among economists arise because of a variety of other factors.
Let's stipulate that economics is not an exact science, and often unforeseen influences may occur to derail the most successful forecaster of economic conditions.
These would include but are not limited to, natural disasters earthquakes, tsunamis, droughts, hurricanes, etc. As a result, an x-factor must be included in every economic equation to account for the unknown and unpredictable.
When forecasting the future of the economy—short-term, mid-term, and long-term—economists may study some or all of the following data, as well as additional data. Most economists have a personal opinion about what numbers are the most useful for forecasting the future. Assume now that three economists look at some or all of the above data and make three different forecasts for the U.
Analyzing and interpreting economic data is both an art and a science. In its simplest scientific aspect, economics is generally predictable. For example, if there's a high demand for a product and the product is scarce , its price will go up.
As the price for the product increases, demand for it will taper off. At a certain high price point, demand for the product will almost stop. Employment numbers are also a predictable indicator. By contrast, when unemployment is widespread, and jobs are scarce, wages and benefits decline because of an over-supply of job applicants producing a negative impact on the economy.
The above factors are among the predictable elements of economics, and economists usually agree on them.
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