Global Economy and Prospects for Financial Markets

The Economy and Higher Education
Forum for the Future of Higher Education
The Brookings Institution
Washington, DC
February 21, 2014
Global Economy and Prospects for Financial Markets
Barry Bosworth is a senior fellow in the Economic Studies
Program (the Robert V. Roosa Chair in International Economics)
at the Brookings Institution. His research has involved work on
the determinants of economic growth in developing countries,
saving, capital formation, and productivity growth.
Roger Ferguson is President and Chief Executive Officer of TIAACREF. He is the former Vice Chairman of the Board of Governors
of the U.S. Federal Reserve System. He represented the Federal
Reserve on several international policy groups and served on key
Federal Reserve System committees, including Payment System
Oversight, Reserve Bank Operations, and Supervision and
Key Observations
The global economy is likely to gather steam in 2014, maybe
growing 3.5 to 4 percent on average.
China and India are no longer going to have double digit
growth rates.
Europe is doing better mainly because they couldn’t be
doing worse.
Most of the downward adjustment in the emerging markets
that occurred in 2013 is now over.
Equity markets are likely to be relatively supportive of
growth going forward. By contrast, the environment for
fixed income will be much more challenged.
A couple years ago people worried the Fed’s policy of
buying up debt would stoke inflation, but today deflation
seems the greater threat.
Household income in the U.S. has held up very well during
the recession. But in terms of market income there’s a
sharp downward trend.
The employment-to-population ratio is discouraging.
Projections out to 2020 show it not rising.
The economic model in higher education might be turning or
State schools are going to have to figure out how to become
more like private institutions, building up planned giving
and other sources of income.
Medium sized liberal arts schools with good national
reputations must appeal to their natural constituencies by
conveying why there’s good value for money. The value
proposition is around the faculty and other students one
meets there.
Big universities need to monitor what’s going on in
Washington D.C. The research schools have to be deeply
concerned about budget negotiations and NSF grants.
Endowment management is important.
around raising money.
There are two or three ways to invest in China but none of
them are very attractive. China’s view of the world is
worrying because it’s very much a zero sum game.
The slowing economies overseas are unlikely to reduce the
number of international students because most of these
students come from the very upper end; a slowing economy is
not necessarily very detrimental to them.
There’s an arms race
Financial issues are not at the heart of why so many
university employees are reluctant to retire. It is much
more psychological, about having a vision of what
retirement looks like.
The models of interaction between faculties and
institutions are likely to change. The drive towards
MOOCs, for example, will have a big impact on the economics
of higher education.
Financial literacy among faculty and employees at
universities is inadequate. Many steps can be taken to
improve financial literacy.