FX.co ★ Abby Joseph Cohen talks about causes of US problems

Abby Joseph Cohen is a professor at Columbia Business School and former Goldman Sachs Senior Investment Strategist.

One of the reasons why the US economy has outperformed the economies of other developed countries over the last 30-40 years has been because there had been labor force growth. According to Cohen, it's a very simple arithmetic equation: More workers, more GDP. "And in the US we have been very dependent on immigration. That's not new. This has been a nation of immigrants since its founding. If we're not viewed as welcoming to talent from around the world, we'll have a problem going forward in terms of long-term growth," Abby said.

When we look at the information from individual companies and industries, we see that there is a labor shortage at all ends. We all know, for example, that right now one of the reasons behind the rise in service inflation has to do with an inadequate number of workers at airports, in hotels, in restaurants and so on.

Do we have enough new scientists? Do we have enough new engineers? Do we have enough new doctors? The answer is no, we do not.

Cohen stated that the promise of the American dream had to be defined. "And that is: Is every generation doing better than the previous generation? Does every new family in the US have the opportunity to do better than their parents did? And what we have seen over the last 30 or 40 years is that median household income in the US adjusted for inflation has not risen," she said.

Cohen thinks this is a problem. In her view, it creates a sense of political discord. "It creates a sense of unease among people in the US. And it is worrisome because we have to think about how we get out of this," she added.

Many economists, including Abby Joseph Cohen, believe the so-called golden era of the 1950s, 1960s US economy was linked to a willingness to invest heavily in the future. As a percentage of GDP, the US was dramatically above every other nation. The country was No. 1 in that category for a century. However, that is no longer the case. There are almost a dozen other countries that are outspending the US relative to their own GDP.

The strength of economic growth and long-term prosperity of the people in the nation is tied to the health of the middle class, and to whether the wage increases for those families are adequate. Abby believes that "this rise in inflation has pulled apart the curtains".