Amidst the New Year approaching, the market is filled with optimism about the development of the US economy. Despite varying opinions from different schools of economists, there is a general bullish sentiment regarding the economic outlook for the United States next year. According to the latest survey by consulting firm Teneo, CEOs of major global corporations mostly view the US as the most attractive investment destination for 2025. Visiting professor at Columbia Business School, Yu Lun Jing, breaks down the different predictions from current economic schools of thought.
Keynesian Economics: Economists following Keynesian Economics believe that the Trump administration may implement expansionary fiscal policies in 2025, such as tax cuts and infrastructure investments. Such policies can stimulate short-term economic growth and job creation, but they might also lead to increased fiscal deficits and public debt risks. Economists like Paul Krugman emphasize the significant role of fiscal policy in a high-interest rate environment.
Supply-Side Economics: Advocates of Supply-Side Economics, represented by Arthur Laffer, advocate for stimulating economic production through extensive tax cuts and deregulation. They anticipate that the policies of the Trump administration could enhance productivity, promote employment, but may also widen wealth disparity and pose risks of long-term inflation.
Monetarism: Followers of Monetarism, influenced by Milton Friedman’s theories, closely monitor the monetary policy of the Federal Reserve. They suggest that the Fed may continue to maintain a tight monetary policy to combat inflation, which although effective in curbing price hikes, might lead to slowing economic growth.
Neoclassical Economics: The Neoclassical Economics school emphasizes the self-adjusting nature of markets. They believe that the policies of the Trump administration will reduce government intervention and enhance resource allocation efficiency, but market adjustments may bring uncertainties, especially impacting low-income groups or causing adverse effects.
Modern Monetary Theory (MMT): MMT holds a more radical perspective, asserting that the US government can utilize the global reserve currency status of the dollar to stimulate the economy through unlimited fiscal spending. However, this theory faces practical challenges such as inflation and credit risks and has not gained widespread acceptance.
Yu Lun Jing, with extensive experience in international auditing, practicing law in California, and working in Wall Street, shared with reporters that he personally leans towards Keynesian Economics when considering the US economic outlook for next year.
He believes that Keynesian Economics can offer feasible solutions for the Trump administration by stabilizing the economy in the short term and achieving long-term growth through appropriate policy adjustments like expanding government spending, such as infrastructure construction, to rapidly boost economic growth and drive employment.
Moreover, Yu Lun Jing highlighted that Keynesian Economics emphasizes the flexible use of fiscal and monetary policies. In the current globally uncertain economic landscape, including geopolitical tensions and supply chain challenges, fiscal policies can promptly fill demand gaps and create a stable development environment for the private sector.
Additionally, Keynesian Economics is more effective in avoiding long-term stagflation and deflation risks, while Supply-Side Economics may overly rely on the self-regulating capability of the market, potentially leading to risks of “stagflation.”
Drawing on his practical experience in Wall Street, Yu Lun Jing stated that “Keynesian Economics provides the government with more practical economic management tools that can quickly respond to market demand fluctuations and prevent policy lag from damaging the economy.”
He remarked, “Overall, the policies in 2025 may improve the economic conditions of some ordinary people in the short term, but the achievement of balanced economic growth in the medium to long term still depends on precise policy implementation and changes in the international environment.”
In the past year, the Federal Reserve reversed its rate-hike trajectory and implemented three rounds of interest rate cuts. Following the latest easing policy announced by Fed Chairman Jerome Powell earlier this month, Powell used the term “uncertainty” several times during press conferences. It is widely speculated that whether the Fed will continue easing next year depends on inflation fluctuations. However, with Trump having hinted at raising tariffs multiple times, some economists are concerned that tariff hikes may exacerbate inflation, slow down economic development, and reduce job growth.