The Economy: Beneath the Din

Robert Borosage

Donald Trump’s “barstool eruptions” fill the news shows, but Trump seems tame compared to the economic headlines. The stock market craters and then bounces back. Growth for the second quarter is revised up to 3.7%, even as CBO revises its projection for this year down from 2.9% to 2.0%. The dollar is up and inflation is down, yet the Federal Reserve is talking itself into hiking interest rates. The owner of our office building decided to put TVs into the elevators, all tuned loudly to the babbling heads on CNBC. One thing is clear amid the din: these economic weathervanes don’t have a clue which way the wind is blowing. So to help clear the murk, here’s a bit of common sense.

The Stock Market Isn’t the Economy

Stock prices don’t reflect the real economy. They can soar while the economy sinks or vice versa. They don’t measure how Americans are faring. Less than half of the country is invested in the stock market (and less than ¼ of those under 30). And holdings of the vast bulk are meager. The stock market is significantly a high roller’s casino, although some of the biggest players are gambling with your retirement savings, if you have any.

The gamblers are nervous. Many stocks are overpriced, compared to historic norms. Plus, many large companies have boosted their stock prices by borrowing money to buy back stocks. Fortune 500 companies spent some $2 trillion on stock buybacks since 2009. Corporate debt has soared, most of it going to stock buybacks. There’s strong indication that profits are in decline, in which case indebted companies may well feel the squeeze. But please, don’t consider this advice in any way about how to place your bet in the stock market.

The real economy is still struggling

The revised growth in second quarter is good news. But the recovery hasn’t been felt by most Americans. Employment is up, but the percentage of the population that is employed is still below pre-recession levels, even for those in their prime working years. Wage growth is still virtually invisible. Household wealth still isn’t recovering. Americans enjoy lower gas prices, but struggle with rising costs of health care, college, and housing. Savings are still low.

Still Hard to See the Up From Here

The Governors of the Federal Reserve are clearly itching to begin raising interest rates, which have been held near zero since the Great Recession. They’d like to declare the economy healed and get back to more “normal” rates. The recent stock market tremors, China’s slowing growth, the collapse in commodity prices, the rise in the dollar, the absence of any sign of inflation has made, as New York Fed Chair William Dudley understated, a September rate hike “less compelling.

More to the point, it is hard to see new sources of growth. Where does the demand come from? Companies aren’t likely to expand investment until they see consumers or new markets. But increased consumer demand isn’t likely with wages in doldrums and savings low. The dollar is up significantly compared to other currencies, and will rise further as the Chinese devaluation is matched by its competitors. China is slowing, Europe near stagnation, Canada near recession. Export growth is unlikely to drive the US economy.

That leaves public spending as a source of demand, but the Republican Congress remains wedded to a destructive austerity, and frozen in ideological rigor mortis, unable even to do simple things like fund our highways.

Rebuild the Country, Damn it

With interest rates still low, and our country in greater and greater disrepair Congress should be grabbing this opportunity to rebuild the country, put people to work and drive growth and wages.

The need is apparent. Aged sewers waste water in midst of water shortages. The electric grid can’t handle the dispersed energy vital to dealing with climate change. Our airports are dingy and dangerous. Our mass transit a disgrace. Companies and workers waste hours in traffic gridlock. Our broadband lags global speeds. Our parks are unkempt. Our public schools are aged. The list goes on.

It is simply preposterous that one of the richest countries in the world allows itself to descend into public squalor. We can rebuild now with interest rates near record lows, workers in need of jobs, the economy in need of a boost.

Bernie Sanders is calling for a five-year $1 trillion-dollar initiative to rebuild the country. That is far beyond what any other candidate is calling for. It is also less than 1/3 what the American Society of Civil Engineers estimates it would take simply to repair our current infrastructure.

Trump’s posturing fills the news shows. The noisome babble of investment analysts echos through the business channels, even in our elevators. But the glaring, imperative, unavoidable needs of this economy and this country go virtually unmentioned. So it goes.

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