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By Jason Stipp | 06-15-2010 02:51 PM

The Economy's Biggest Risks

Morningstar's Bob Johnson cites possibly detrimental goverment policy and a stalled real wage as trouble spots for the recovery.

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Jason Stipp: I am Jason Stipp for Morningstar. It's Risk Control Week on Morningstar.com, and I am here with Morningstar's Bob Johnson--he is associate director of economic analysis--to talk about some of the worries that are facing the economy, which ones merit some real attention and which ones might be overblown. Thanks for joining me, Bob.

Bob Johnson: Good to be here.

Stipp: So, the first question I wanted to ask you is, as an economist what's the one thing that probably keeps you up at night when you are thinking about the future for the economy and what could affect it positively or negatively?

Johnson: I think government policy actions here or throughout the world are probably my number one worry.

Stipp: So things like taxation or, you know, moving up and down what they are going to charge for dividends and things like that or what specifically?

Johnson: Sure. There's a number of things. Let's touch on a – taxation is certainly one of them. And we are coming up at the end of the year where we are going to have a different tax regime on capital gains and dividends unless they change the law. And I think there was an outside chance that they actually may add on to those taxes, and I think that's very bad for the investment climate to have those taxes on investment income going up so much. So I think that's harmful, and I think there is potential for them to do even more damage there. So that's on the taxation side.

And my probably biggest worry is we do something tariff or trade wise. It may not be a trade dollar-for-dollar thing, but maybe it's a safety regime for things imported from China or something that escalates into a trade war. I think we are very much tied with China right now in terms of our trade relationship, and we are really both helping each other out, and I think we stand some problem if we put down a new tariff or say we are not trading with China anymore.

Stipp: So, moving on to some of the other things that you closely watch, I know that the consumer spending obviously is an important part of the recovery and how much consumers make is a big driver of how much they are going to spend. And real wages is one of the things that you look at. Tell me a little bit about why you are looking at the real wage and what it has been doing recently?

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