Martin Feldstein – one of the most respected economists of our time – spoke a cautionary message at the Economic Club of Indiana luncheon in Indianapolis Tuesday.
“Reports of the economic recovery have been greatly exaggerated,” Feldstein said.
As a long-time Harvard professor of economics, Feldstein has educated many of today’s economic leaders. He has also served in top advisory roles for three of the past five U.S. Presidents. While acknowledging the consensus among professional forecasters that we are in an economic recovery, Feldstein remains skeptical about the sustainability of current growth.
“Many of the recent positive (economic) numbers are from temporary policy changes such as the stimulus package and first time home buyer tax credit,” Feldstein explains.
Feldstein supports the idea of using fiscal policy to end the recession but feels the Obama administration’s programs were poorly designed and ultimately failed. His long range concerns are based on the housing market – in which one-third of homebuyers owe more money on their loan than the home is currently worth – and the growth in national debt.
In total, Feldstein feels that the economic outlook is a mixed picture – with the decrease in value of the dollar versus other world currencies making American goods more affordable and reducing trade deficits. He believes the prospects for a recovery are based largely on the household savings rate in 2010. An increased savings rate – while typically seen as beneficial for individual families – would delay the overall economic recovery by slowing consumption. The current national savings rate of 4-5% is double what it was immediately prior to the recession.