The expansion is ending, not soaring
The New York Times this morning wonders why the “booming” economy isn’t redounding to benefit Republican politicians. Here’s a try at an answer: the economy is not booming:
It is in fact growing at about the same rate it has grown since 2010, when the deep recession induced by the 2008 financial crisis ended. Nor is there a dramatic change in unemployment, which likewise has been tending downwards, albeit at a gradually slowing rate since 2010:
source: tradingeconomics.com
The supposed change in America’s economic performance since President Trump came to office is a myth.
The only thing soaring at the moment is the national debt:
source: tradingeconomics.com
This is due to the Trump tax cut for the rich and a massive budget deal that increased the deficit, which had shrunk dramatically during President Obama’s two terms after ballooning during the 2008 recession:
source: tradingeconomics.com
The economy is not soaring. It is reaching its limits: unemployment can’t go much lower and inflation is rising:
The Administration’s draconian limits on immigration and its taxes on American production and consumption (also known as tariffs), as well as the ballooning budget deficit, are going to increase pressure on wages and prices, which the Fed will need to counter by increasing interest rates. Foreign tariff retaliation will also hurt U.S. production.
So if American voters are not paying much attention to the economy, it’s not because they are ignoring its stellar performance. It’s because they understand that the helmsman is reckless and the current performance is unsustainable. The stock market, which recovered well under Obama and accelerated a bit in Trump’s first year, swooned earlier this year and is now recovering, but only so far to about the same level as in January:
source: tradingeconomics.com
It is only a matter of time before the market sees what the public already does: that the limits to this long expansion are not far away.
This pessimistic macroeconomic outlook comes on top of a lot of other problems: Administration-induced increases in the cost of health insurance as well as reductions in coverage, forest fires and storms causing massive unprogrammed state expenditures and Federal relief, unproductive trade negotiations, and deregulation that threatens environmental and financial harm to consumers.
Hold on tight. The roller coaster is near its peak and readying for the downhill slide. The expansion is ending, not soaring.
PS: Nouriel Roubini and Brunello Rosa offer a more professional and global argument along the same lines at Project Syndicate today.
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