Headwinds and Tailwinds to the Economy

Presidents get too much credit and blame for the economy. They can provide headwinds and tailwinds, but global market forces tend to control what happens. By headwinds, I mean the wind is against the economic growth, with tailwinds aiding economic growth.

In the US, we are under the third longest economic growth period in our measured history with 103 consecutive months of growth. We have also had seven consecutive years of 2 million plus jobs created. And, the stock market more than doubled under Obama and continues its rise under Trump. These are great numbers. But, before we pat ourselves on the back too much, not everyone has benefitted and wealth disparity among economic classes has been widening for the past thirty-five years.

Economists I have watched project the good news to continue for the year, but several have cautioned about the future and if we don’t address the inequity, we will have major problems on top of other concerns.

On the tailwinds ledger, the global economy continues to grow and the World Economic Forum projects a 3.9% increase for the year. In the US, the cut back on regulations, plus the reduction in new ones over the rates of the past, have given more confidence to businesses (more on this later). Plus, the reduction in corporate tax rates will help fuel some growth, provided these companies who are sitting on cash, choose to invest it in their people and business. And, with more money in many people’s pockets, this will add some fuel.

On the headwinds ledger, several economists have noted we are robbing Peter to pay Paul, leveraging our future with even more debt. Not only did we not address the expected increase in debt taking it from $20 trillion to $30 trillion in 2027, the tax law will increase it by $1.5 trillion. The interest cost thereon will take a greater bite out of our budget. But, other headwinds are of concern. Retrenching from global markets and trade agreements replacing them with binary ones, will be dilutive to growth. Not investing as much in science and innovation is a major concern to Joseph Stiglitz, a Nobel laureate in economics.

This will be heightened if we restrict immigration. What seems to get lost in the argument where some have become too cold-hearted in my view, is immigration is accretive to the US economy. Plus, the people immigrating tend to be more entrepreneurial and better educated, in many cases. These sh**hole countries that someone demeaned are sending us more educated people than reside here in the states, on average.

We should not fail to remember that “innovation is portable” so says David Smick, an economic advisor to Ronald Reagan, Bill Clinton and Jack Kemp, one of the smartest Congresspersons who considered a run for President. If we do not provide an inviting place, innovation may be hindered. I should note that Steve Jobs was born to Syrian immigrants to the US. What if they had been denied entry? Apple might not have ever come to fruition.

Finally, not all regulations are bad, so restricting regulations may cause headwinds down the road especially with more freedoms given to pollute the environment and take advantage of customers. This is a developers mindset. Remove obstacles to build, but leave the clean up for others. Unfortunately, we taxpayers are the others. We citizens, that must drink and breathe more polluted waters and air and realize the impact of climate change, are the others. As coal ash deposits have taught us, there is a cost to environmental degradation.

So, we need to be mindful of what we are facing. I have communicated with numerous Congresspersons, Senators and the President, that we are avoiding some elephants in the room – debt, climate change, water crisis and income inequity. In my view as an Independent voter, passing a tax law that increases the debt was extremely poor stewardship, as we cannot cut our way out of this problem. The math won’t work.

 

9 thoughts on “Headwinds and Tailwinds to the Economy

  1. Dear Keith,

    I keep telling fellow republicans that after 1981, President Reagan had to increase taxes 11 times, mostly to correct for the 1981 “trickle down” economics tax cuts or the debt would have ballooned worse than it did.

    There’s a reason the 1st President Bush had to raise taxes. After the 2003 republican trickle down tax cuts, we ended up with the worst recession since 1929.

    I am waiting for the proverbial squeeze. We could not afford the 2017 trickle down economics tax cuts and there will be the unintended consequences.

    And to grow the economy, increase jobs, increase pay as help becomes more difficult to find, there needs to be a major increase in legal immigration, not less.

    These peoples in the White House are clueless.

    Hugs, Gronda

    • Gronda, I agree that people have poor memories on history. The tax bill was rushed through primarily because donors said funding would dry up if they did not. Their sugar daddies said jump. It has gotten less fanfare, but Trump is starting what will be a tariff war, adding tariffs to imported washers and solar panels. Solar installers are ticked, but their opinion matters little to Trump. Tariff wars are not productive. Keith

    • Janis, I just commented above about how tariffs wars are unproductive. These are chest beating measures that usually get unwound after other tariffs are added and arguments ensue. Keith

  2. Note to Readers: While tactics have been used by Republicans to make increasing ACA premiums higher, if the ACA was repealed, this would be very dilutive to our economy, not to mention the physical and mental health impact.

  3. Note to Readers: The World Economic Forum meetings in Davos this week are interesting. The India and French leaders (Modli and Macron)!are advocating globalization, as Xi Jingping of China has been doing the last year, at the US expense. The US leader will be preaching retrenchment and nationalistic trade which includes tariffs. It should be noted that the Transpacific agreement that the US walked away from will be continuing without us, as the Canadian leader, Justin Trudeau, will be announcing this week.

  4. Economics seems to me a little like religion. There are so many aspects, so many things to consider and, I suspect, no one right way. I wonder if America’s world leadership will be gone forever after this #45 phase, or if we will be able to recoup our losses with future administrations.

    • Linda, his successor (and maybe his successor’ successor) will have to go back hat in hand to renew relationships. One thing that we lose sight of is global trade, the EU, etc. make us safer as a planet. Commerce can break down barriers. It did with China, Russia and could do so with Cuba and Iran, if we let it. Keith

  5. Note to Readers: Following the US President’s remarks at Davos, the head of the International Monetary Fund, Christine Lagarde spoke a more cautionary tale of the US tax cuts.

    Per The Guardian,”Reforms may threaten recovery and lead to bigger US budget deficit,” says Lagarde. She is worried about the impact of increased borrowing by the US and worried about the euphoria that overlooks these concerns.

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