An Economy in the Fast Lane – With No Brakes

Richard Eskow

Donald Trump has been bragging about the economy a lot lately. He says the United States is now the “economic envy” of the world. Unfortunately, Trump is once again trying to reshape reality to fit his own delusions. Reality is refusing to cooperate.

It’s true the U.S. economy is in the fast lane, by some measures, just as it was in the final years of Barack Obama’s presidency.  But where, exactly, is it headed?

And what will happen when the next blowout comes, as it inevitably will?

We know one thing: average Americans, who have seen their incomes stagnate while inequality rises, and their wealth declines, will bear the brunt of the next recession.

Less Than Amazing

First, it should be noted that what Trump calls an “amazing” economy isn’t amazing for everyone. As Bernie Sanders correctly notes, 40 percent of Americans don’t have $400 on hand for an emergency – a brake job, for example, costs $567 on average for both axles – and 43 percent of Americans (50 million households) can’t afford to meet their basic monthly expenses.

A full two-thirds of Americans would have trouble coming up with $1,000 for an emergency.

More than 44 million Americans are struggling with more than $1.5 trillion in student debt. Others struggle to pay credit card debt, mortgages, and usurious payday loans.

Nor is the world likely to “envy” the tens of millions of Americans living in poverty, including the estimated 5.3 million Americans living in deep poverty like that of the poorest Third World countries.

And, while our top-line numbers on jobs look very good, the same can’t be said of our labor force participation, which tracks the people left out of standard calculations.

That figure lags behind those of other developed nations, even among working-age Americans. If our figure matched Great Britain’s, for example, more than 11 million additional Americans would be working or job-hunting today.

Citizens in other advanced economies aren’t likely to envy our healthcare “system,” either. It’s a partially-privatized madhouse that leaves tens of millions uninsured, many millions more under-insured, and most of us subject to thousands of dollars of medical expenditure – often without warning.

The Coming Blowout

From 1947 through the 2008 financial crisis, there was a recession every 6 to 7 years in the United States. If that cyclical pattern still holds, we are overdue for the next one. Its timing is a subject of constant debate. Economists and investors are tracking the usual indicators, which include Treasury bond yields and the housing market.  Financial expert Nomi Prins writes that we are at “the edge of a dangerous financial precipice.”

So far, the signs are mixed. But time is not on the economy’s side – especially with the mercurial Mr. Trump in the Oval Office. Without an overall industrial policy or trade plan, Trump’s trade antics inject uncertainty and instability into the economy.

The work of re-regulating Wall Street to prevent the kinds of speculative practices by banks that created the 2008 financial crisis, which the Dodd-Frank bill only began to do, has also come to a stop under Trump.

Instead of building upon Dodd-Frank, the administration and Congress (including corporate Democrats, as well as the GOP) are unwinding it.

Meanwhile, the country’s too-big-to-fail banks are even bigger than they were in 2008. That means they pose an even bigger threat to the economy. Their executives escaped punishment for the crimes that created the last recession, which means there are fewer deterrents to future (or current) lawbreaking.

Whose Fed Is It, Anyway?

One thing is certain: sooner or later, there will be another recession. Then what happens?

The Federal Reserve is seen as the first line of defense in a recession. But the Fed still holds more than $4 trillion in assets, a holdover from its efforts to keep Wall Street afloat after the 2008 financial crisis. That limits its ability to respond to an especially severe recession.

Donald Trump has had an outsized impact on the Fed’s appointments leadership, and seems to want more direct influence over its actions – which means the central bank will be even less inclined to direct its responses toward the people who will be hurt the most.

Trump’s recent attack on the Federal Reserve lacked coherence, but the media backlash to his comments went too far: governance of the Fed should not be above political criticism, since it is a creature of government. The Fed has done far too much to serve bankers, leaving it vulnerable if another severe recession hits, while doing far too little to help the people whose collective will brought it into being.

It’s time to fundamentally restructure the Fed along more democratic lines, with reforms that reduce the influence of bankers and strengthen that of the American people. (More on how that might work here.)

Preventive Politics

Another line of defense is stimulus spending. The government should be investing more in our economy today, creating jobs and economic growth by rebuilding our rumbling infrastructure and delivering other needed services.

When the next recession hits, that spending will be needed even more.  Mainstream economic research shows that government spending is especially important and productive during tough financial times.

Unfortunately, the Republicans who run the government will almost certainly team with like-minded Democrats to prevent that from happening. That’s yet another reason to elect more true progressives to the House and Senate in November.

The economics of the moment call for a political response – with policies that eliminate poverty, strengthen the middle class, and end the banking sector’s stranglehold on the economy. And the time to act is now, before the next recession hits.

When the next recession hits, the working people of the United States will pay the steepest price. Their voices should be heard today, before the government tries to slam on the brakes – and nothing happens.

 

 

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