Economist Nancy Lazar from Piper Sandler is standing by her recession call for the US economy, citing the importance of two bills currently being debated in Congress. The first bill is a proposed tax cut, which would provide businesses with more cash for major investments. The second bill is related to military aid for Ukraine and Israel, which would boost the defense sector. Lazar warns that if these bills don't pass, the US economy could risk falling into a recession. She argues that the recent productivity boom, although seen as positive, is actually a warning sign of a possible recession. Lazar forecasts a bearish 0.5% decline in GDP growth rate in 2024, but with the fiscal stimulus package, including the two bills, she sees that number turning around to a 1% growth rate. The forecast of a 0.5% decline in GDP is somewhat pessimistic compared to others. Lazar explains that her call stems from the belief that the recessionary impacts of the Fed's rate hikes haven't kicked in yet [f70ac4f6].
The fate of the US economy may rely on the passage of these two bills currently moving through Congress. The tax cut bill faces a difficult challenge in the Senate, with odds of passing estimated at 40% to 50%. The funding for Ukraine and Israel also faces a difficult path forward, particularly in the House. If one or both of the bills don't pass, the economy could still avoid a recession if President Joe Biden succeeds in implementing his student loan forgiveness plan or if grants from the CHIPS Act are given to companies. However, the passage of the tax cut and military aid bills would provide a significant boost to the US economy, creating a flurry of business activity and potentially avoiding a recession. The tax cuts would allow businesses to have more cash on hand for major investments, while the military spending bill would provide a windfall for the defense sector. The added military spending alone would lead to about a 0.3% increase in US GDP [f70ac4f6].
In an opinion piece published by The Hill, economist Burton Abrams raises concerns about the silence of economists on current fiscal issues. He notes that in the past, economists would engage in debates about equity and efficiency, but now they seem to be silent. Abrams specifically mentions President Biden's college loan forgiveness program, which he argues is neither equitable nor efficient. He points out that Larry Summers warned that the program would be inflationary, but received little support from other economists. Abrams also criticizes Alexandria Ocasio-Cortez's proposed Green New Deal, stating that it fails both equity and efficiency tests. He further highlights that economists are not engaging in public debates about the rush to electrify the country and the potential consequences for the gas and oil industries. Despite the economy being at full employment, Abrams points out that the budget deficit is 7% of GDP, which he deems reckless and unsustainable. He concludes that economists are needed to ensure good policy and that their absence from public debates leaves policy decisions to sociologists, political scientists, and politicians [c83c6f86].
