Dallas Fed Chair Kaplan talks about Texas’ economy health and concern for US as a whole

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June 05, 2018
‘The US economy is at full employment’ was one of the key take aways for the state of today’s economy during the May 17 Richardson Chamber Annual Meeting discussion with Robert S. Kaplan, president/CEO of the Federal Reserve Bank of Dallas, a sit down directed by the Chamber’s President/CEO Bill Sproull.

“Texas is one of the bright spots in the country, where the workforce is growing and economy improving, mostly from migration from other parts of the country,” Kaplan said. In the last 20 years, the Texas population has gone from 22.5 million to 28-29 million. If Texas tops the list, though, the rest of the country is either flat to down, with the bottom of the list being states like Illinois and Connecticut.

The full employment bit might sound like a good thing, but Kaplan’s entire presentation brought up more areas of concern. “Most of the growth during the last 20 years has come from immigration and having children, not productivity,” Kaplan said. Because of an aging population, 37 percent of the population is sitting on the sidelines. The US has traditionally had a competitive advantage over other countries because of the influx of immigration and being culturally receptive to it. One example Kaplan gave was Japan, which has not been open to immigration and where 30 percent of the population is aging. Both Japan and Germany have populations that are on the decline.

Education was a topic of concern for Kaplan and the need for skills growth. As far as science, technology, engineering and math (STEM) skills, the US ranks 25 out of 36 of industrial countries with student skills in these areas. Half of all students are not graduating college even in six years. “If someone has a degree and loses their job in their 40s, yes, it’s disruptive, but they can adapt,” Kaplan said. It’s the lower, uneducated classes that are getting squeezed.

Kaplan is also concerned about the recent tax legislation. In a few years, the US is going to be even more highly leveraged. Why? Unfunded entitlements. The government growth of debt vs. GDP is 76 percent. The government debt is more than $49 trillion. And the aging population makes it worse, which means the government is even more leveraged. Part of the solution is globalization. Kaplan points to the relationship with Mexico as a way to take share from Asia. China’s willingness to steal intellectual property to compete is having a negative effect. The best way to combat this is to shore up North America alliances and other trading relationships with allies. The World Trade Organization (WTO) levels the playing field and subjects other countries to the rules.
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