â2025 Economic Outlookâ Rob Kaplan, Vice Chairman of Goldman Sachs, provides a 2025 forecast for the U.S. economy and the financial markets, including the impact of tariffs, before a January 21, 2025 meeting of The Economic Club of Florida.
Show Notes (for complete Show Notes, please visit https://www.economic-club.com/2025-january-rob-kaplan)Â
Mr. Kaplan discussed the economy of the past few years, what he thinks the future might bring, and how Florida is one of the states leading the way.
The past economy has been characterized by several main drivers.
âThe economy over the last four years,â he said, âwhether we like it or not, has been government spending led. If you go back to 2019, net debt of the U.S. government divided by GDP, was about in the mid-70s. Today we're pushing up near 100% debt to GDP.â
Part of the problem was that COVID happened. The government estimated that the economy would lose $2-trillion, so Congress passed a bill to fill that gap called the Cares Act. Mr. Kaplan said the Federal Reserve printed every dollar of that Act.
Because, during the lockdown, spending went up but services did not, 2020 was the first recession in modern history where GDP went down while consumer spending went up.
âI would argue that if the excess fiscal spending stopped right there, I don't think we would have had the extent of the inflation issues that we've ultimately had,â he said.
However, the Biden administration passed new legislation â the American Rescue Act.
âIn 2019, we ran a budget deficit in the United States of around 4% of GDP. In 2020, we ran a budget deficit around 15% of GDP, historically high. What people don't focus on is, in 2021 we ran another monster deficit, around 12% or 13% of GDP. Historic. It was not to fill the COVID gap. The American rescue Act money got spent in 2021, 22, 23, and 24.â
Following that was passage of the Inflation Reduction Act, for another trillion dollars. Kaplan said that fostered a whole range of public-private partnerships all through the United States. About 25% of the money is from the government and 75% private, but he said the projects would not happen without the government money.
He cited, as examples:
- More than 20 lithium battery plants being built across the United States, including one in his home state of Kansas.
- A New York tunnel project which cost $50-billion and employs 60,000 workers.
- Other very large infrastructure projects across the US.
These projects cause disruption in the workforce.
âWhen you announce a project like that (Kansas battery plant), every restaurant in the state tells me they can't find workers. Every service sector establishment just lost workers because they're going to make $35-$37.50 an hour at the lithium battery plant in DeSoto, Kansas. This is going on all through the country, and itâs not done yet.â
Mr. Kaplan said the Fed probably should have stopped buying bonds in 2021, but waited until mid-2022. The net effect was that inflation got away from the regulators.
That inflation has had drastically different effects on two groups of Americans â each of about 60-70 million people.
The first group, which makes around $55,000 a year or less, has lost purchasing power.
âThis loss of purchasing power that we had in 2021, 22, 23, and 24 has meant they can't make ends meet today. So, $55,000 a year may sound like a lot... (for complete Show Notes, please visit https://www.economic-club.com/2025-january-rob-kaplan)
