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Expert: Economy on Mend, But Work Unfinished

Expert: Economy on Mend, But Work UnfinishedAs the president urges the nation to stay the economic course, Tufts expert Gilbert Metcalf weighs in on what to expect along the way. Medford/Somerville, Mass.

Medford/Somerville, Mass. [01.21.04] On Tuesday, President George W. Bush delivered his State of the Union before a joint session of Congress and millions of television viewers nationwide. During the hour-long address, the president touted the country's economic recovery, while encouraging the nation to stay the economic course with his promises to increase jobs and build momentum for future growth and prosperity. According to Tufts economist Gilbert Metcalf, the economy is getting back on track - but there may yet be some bumps in the road ahead.

"The pace of economic growth in the third quarter of 2003 was the fastest in nearly 20 years," Bush said in his address. "Manufacturing activity is increasing, inflation is low, interest rates are low, exports are growing, productivity is high - and jobs are on the rise."

Professor of economics Gilbert Metcalf, an expert in applied public finance, says indicators support the President's optimistic view of the country's economic state.

"The United States is enjoying a recovery that is driven in part by good old-fashioned Keynesian government spending," Metcalf, who is chair of Tufts' department of economics, told Tufts E-News. "We've also enjoyed in the 1990s a combination of good luck in such areas as low interest rates and inflation, reasonably low and stable energy prices, and a moderation in health care cost increases that has created a ‘perfect calm' of economic security."

However, Metcalf said that while the U.S. economy may be in recuperation now, there are no guarantees it will remain so in the future. The Tufts expert said that upcoming financial costs, such as services for an aging population, may take their toll if not adequately addressed.

"I'm concerned that we've squandered an opportunity to build up a cushion to prepare for the baby boomer retirements. Entitlement spending for Medicare and Social Security are going to drive up our deficit sharply in a few years," Metcalf told the United Press International news service. He added that tax cuts and the proposed prescription drug plan may add stress to an already tight budget.

"Health care costs in the last decade grew 1.5 percentage points faster than GDP. This is down from the historic difference (from 1960 to 2001) of 2.5 percent," the Tufts expert told Tufts E-News. "I think it is unlikely that the growth rate of health care costs will continue to grow as slowly as it did in the 1990s."

Despite looming health care expenses, the Tufts professor said that the U.S. has been lucky in the past decade for several reasons - including low energy costs and interest rates.

"Energy prices did spike towards the end of the 1990s but for most of the decade were stable and in fact declining," the Tufts expert told Tufts E-News. "Interest and inflation rates are at historic lows."

While there were some successes in the last decade, the Tufts expert said that overall he has concerns for the country's fiscal future.

"Projections of a dwindling deficit and an emerging surplus in 2012 are pipedreams," the Tufts expert told Tufts E-News. "The United States is putting off difficult decisions now but will face even more difficult decisions in the next five to ten years."

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