1. The Global Economic Outlook:
Five Numbers Facing
America and the World
Matthew J. Slaughter
Tuck School of Business at Dartmouth,
NBER, CBO, and CFR
“Back in the Classroom” Tuck Reunion Talk
Hanover, NH
October 5, 2013

2. Outline of This Afternoon’s Conversation
• What lies ahead for the global economy?
• Let’s explore this question with five numbers.
• Disclosure: I am an independent Tigger. So,
each of these five numbers I am going to term an
opportunity rather than a challenge.
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3. #1:
The Fiscal Opportunity
62.5%
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4. The Opportunity for Fiscal Policy
• When any government spends more than it collects in
taxes, then it faces a limited set of options.
–
–
–
–
Sell debt to private actors—domestic and/or foreign.
Sell debt to its central bank—i.e., central bank prints money.
Receive transfers from other governments/IGOs.
Default/restructure its existing debt obligations.
• History shows that governments need not just the ability
but also the will not to default on their sovereign debt.
• Sovereign repayment capacity is often measured by
(debt/GDP) ratio. But there is no law of physics that
dictates what ratios trigger illiquidity or insolvency.
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5. The Fiscal Opportunity Facing Many
• 2012 Year-End Fiscal Positions (IMF Estimates):
Country
(Gross Gov’t Debt/GDP)
Greece
170.0%
Euro Area
93.6%
Germany
83.0%
France
90.0%
Italy
126.3%
United States
107.2%
Japan
236.6%
• Argentina’s default in early 2002 remains the world’s
largest. What was its (debt/GDP) at end of 2001?
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62.5%

6. Who Will Pursue Pro-Growth Tax Policy?
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7. U.S. Fiscal Future: Really Not Fun
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8. Monetary Policy Interacting with Fiscal Policy:
Central Bankers Struggling with No Playbook
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9. Is This Athens? For Better or Worse, No.
“Detroit Files Biggest U.S. Municipal Bankruptcy” --NYT 7/18
“The Shutdown is a Sideshow. Debt Is the Threat” --WSJ today
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10. #2:
The Income Opportunity
96.2%
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11. Why My Hair Is So Gray: In U.S. and Beyond,
The Rising Tide Has Not Been Lifting All the Boats
• “Spectre of Stagnating Incomes Stalks Globe” --FT 6/27/11
• Change in U.S. average real total money earnings, by
educational group, 2000 through 2012.
Group
Employment Share
HS Dropout
8.0%
HS Graduate
26.8%
Some College
28.2%
College Grad.
23.3%
Masters
9.9%
PhD
1.8%
MD,JD,MBA
2.0%
Earnings Change
-13.3%
-6.0%
-10.1%
-9.1%
-7.6%
+6.8%
+10.3%
• 2012 real median income for U.S. households was
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$51,017. This was $664 below its level in 1989.

12. And The Boats Are Much Farther Apart
Around the World as Well as In America
• Income inequality in many countries has risen sharply in
recent years—in some cases for decades.
• “Within nations, the fruits of this global transformation have
been shared unevenly. Though China’s middle class has grown
exponentially and tens of millions have been lifted out of
poverty, the super-elite in Shanghai and other east-coast cities
have steadily pulled away. Income inequality has also increased
in developing markets such as India and Russia, and across
much of the industrialized West, from the relatively laissezfaire United States to the comfy social democracies of Canada
and Scandinavia.”
--Chrystia Freeland, “The Rise of the New Global Elite,” The Atlantic
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13. Who Cares About These Boats?
• “As Rich-Poor Gap Widens in the United States,
Class Mobility Stalls” –WSJ Series
• “America’s high schools are obsolete. By obsolete, I
don’t just mean that our high schools are broken,
flawed, and under-funded—though a case could be
made for every one of those points … When I
compare our high schools to what I see when I’m
traveling abroad, I am terrified for our workforce of
tomorrow.”
–Bill Gates, Microsoft CEO
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14. Boaters Are Clear about the Forces
They Think Are Washing against Them
• “I am going to read you several statements others have
made about some of the reasons the country’s economy
continues to struggle and more people are not being hired.
After I read each one, please tell me if you agree or
disagree with that statement … U.S. companies are
outsourcing much of their production and work to foreign
countries where wages are lower.”
– Strongly Agree: 68% Somewhat Agree: 18%
– Disagree: 12%
Not Sure: 2%
– “Americans Sour on Trade” --WSJ Page A1 10/4/10
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15. Can the Tide Rise Faster to Help Lift Boats?
• “Shale Gas Boom Now Visible from Space” –FT 1/27/13
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16. #3:
The BRIC-and-Beyond
Opportunity
3.1%
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17. See India’s Speed Limit Accelerate
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9
Average Annual Rate of GDP Growth
8
7
6
5
4
3
2
1
0
1980-1991
1992-2002
2003-2007
• Balance-of-payments crisis in 1991 forced India to expand
role of market forces—especially international forces.
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18. See China Race Fastest of All
• 1978-2012 GDP grew at an average annual rate of c. 9.9%.
Like in India, this growth take-off started from crisis.
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19. One Thousand Words From 1990
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20. Another Thousand Words From Today
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21. The BRIC Opportunity
• The “BRIC and Beyond” emerging markets offer
the potential of tremendous growth, especially for
middle classes, if sound economic policies persist
integrating them into the global economy.
– Per capita GDP in Brazil is today about 26.0% ($13,000) that of
USA, China 12.2% ($6,100), and India just 3.1% ($1,600).
• This integration is a force pressuring the incomes
for many in advanced countries. America, e.g.,
needs to build millions of jobs and incomes
somehow connected to the world. Will we do this?
– “Hope for the Disillusioned Heartland” FT 10/4/12
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22. #4
The Talent Opportunity
0%
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23. Canaries in the Coal Mine
• “There is no guarantee that the past will be prologue … Today the
U.S. is in an era of global competition to attract, retain and grow the
operations of multinational companies that it's never faced before.”
• “Many [CEOs of U.S. multinationals] voice concern about the future
ability of this country to attract and grow corporate investment, R&D
and jobs. U.S. multinationals will not aggressively invest and hire
here at home if they can't realize attractive returns from doing so.”
• “U.S. multinationals are uniquely positioned to help America meet
[current] challenges. But this will require far-sighted policy initiatives
like liberalizing trade and protecting intellectual property … Will our
lawmakers pay attention?”
– Martin Baily, Matt Slaughter, and Laura Tyson WSJ op-ed 7/1/10
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24. Listen to the Singing
• 26 leaders of U.S.-based multinationals worry that many
current U.S. policies—e.g., high and complex corporate
taxation, limits on skilled immigration, and bureaucratic
hurdles and inconsistencies—handicap their companies,
compromising the future ability of the U.S. to attract and
grow investment, R&D, and jobs. (MGI, 2010)
• 72.2% of CFOs of insourcing companies say that the
environment for doing business in the United States
deteriorated over the last year, versus just 13.3% that say it
improved. (OFII, 2010)
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25. Quick Fun Question,
Just Like in the Good Old Days
I was born in 1969. Over my lifetime thus far, by
what amount has the high-school graduation rate
increased in the United States?
A.
B.
C.
D.
Approximately zero percentage points.
5 percentage points
9 percentage points
16 percentage points
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26. Here Is a Discordant Song, About Talent
• America’s dramatic educational upgrading of the
20th century largely stopped in my lifetime.
– In 1969 the U.S. high-school graduation rate was 77.1%, up from
just 5% in 1900. That rate subsequently grew by about 0 pp.
– America continues to constrain inflow of talented immigrants.
• Meanwhile, talent development abroad accelerates.
– Today among industrialized nations, U.S. ranks 16th in collegecompletion rates and 20th in high-school completion rates.
– The most-recent PISA results for 65 countries: U.S. 15-year-olds
were 15th in reading, 23rd in science, and 31st in math.
– What country scored first in all three categories?
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27. Is Anybody Listening to All This Singing?
• Uncertainty about the role and scope of
government in several key industries: finance and
insurance, real estate, autos, health, energy, …?
– “How to Destroy American Jobs” WSJ 2/3/10
– “China, Patents, and U.S. Jobs” WSJ 6/6/11
– “How To Avoid a Clean-Tech Trade War” WSJ 3/13/12
• The Crumbling Infrastructure: What grade did
ASCE assign the United States in 2009?
– “How to Jump-Start American Manufacturing” WP 8/13/10
– “How Skilled Immigrants Create Jobs” WSJ 6/21/12
• The Protectionist Drift away from Open Borders
– “We Cannot Afford to Spurn the Emerging Investors” FT 1/4/10
– “More Trade and More Aid” NYT 6/9/11
– “A Pro-Trade Agenda for the U.S.” WSJ 9/17/11
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28. #5:
The Hope Opportunity
3%
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29. One More Good-Old-Days Question
Recently The Wall Street Journal asked in a survey
of American adults, “Do you feel confident or not
confident that life for our children’s generation
will be better than it has been for us?” What share
of respondents answered, “confident?”
A.
B.
C.
D.
66%
50%
49%
27%
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30. Will This One Be in the History Books?
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31. Reading Something Like This?
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32. So, Was That Sunrise or Sunset?
• “Do you think America is in a state of decline, or do
you feel that is not the case?” (WSJ-NBC recent)
– Not in a state of decline: 31%
– In a state of decline: 65%
• “U.S. Right or Wrong Track?” (WSJ-NBC July 2013)
– Headed in the Right Direction: 29%
– Off on the Wrong Track: 61%
• “Do you feel confident or not confident that life for
our children’s generation will be better than it has
been for us?” (WSJ-NBC)
– October 1990: 50% Confident vs. 45% Not Confident
– December 2001: 49% Confident vs. 42% Not Confident
– August 2010: 27% Confident vs. 66% Not Confident 32

33. Sunrise or Sunset Around the World?
“How easy or difficult is it in our country for a young person to get a
better job and become wealthier than his or her parents—very easy,
somewhat easy, somewhat difficult, or very difficult?” (Pew, 2012)
Share of Responses Very Easy + Somewhat Easy
China: 57%
Brazil: 40%
India: 30%
Mexico: 20%
Germany: 18%
United States: 14%
Egypt: 13%
United Kingdom: 9%
France: 8%
Italy: 7%
Greece: 3%
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34. Where Are the Leaders To Bring on Sunrise?
• “In my more than 50 years in business, I
cannot recall a time when there were so many
daunting national challenges, with business
engagement so lacking. This was not always
so … It’s time to get off our butts, cure
ourselves of an aggravated case of short termitis … It’s time to do the right thing, not just to
protect our kids and grandkids but to safeguard
our remarkable country’s future.”
– Peter G. Peterson, “Business Is Missing in Action,”
BusinessWeek 11/16/09
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35. Concluding Thought:
They Are Right Here
• Despite all the challenges facing the world, the
opportunity for principled, wise leaders has
never been greater.
• Rest assured that every Tuck student here
today—and we faculty as well—are working
hard to provide the leadership that the world
so desperately seeks.
– Leadership in the Global Economy course
– The Center for Global Business and Government
– The Slaughter and Rees Report
http://cgbg.tuck.dartmouth.edu/research-cgbg/slaughter-rees-report
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36. Thank You!
Enjoy the Rest of
Reunion!
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