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.

 

Income inequality per a Nobel Laureate in Economics

On the good side, we finally are beginning to talk about income inequality. We are a nation of “haves” and “have-nots” with an increasing number in the middle class that are living one paycheck away from poverty. On the bad side, are the overly simplistic assessments of blame, reasons and solutions, most of which do a disservice to this complex topic.

Some lay blame on the policies of LBJ’s “Great Society,” yet that trivializes the last fifty years. In fact, LBJ’s “War on Poverty” was hugely successful with those over age 65 with the introduction of Medicare and Medicaid and improvement to Social Security. Yet, positive movements for those under age 65 have been waylaid by other factors over the last fifty years. Some lay blame on the issue with respect to African-Americans with too many children born to unwed mothers. Again, that is an issue, but overly simplifies that as a cause, and it does not reflect that most Americans on welfare are white.

The best place to look is the advice of Nobel Laureate in Economics, Joseph Stiglitz, who wrote the book “The Great Divide: Unequal Societies and What We Can Do About Them.” In his view, this Nobel Laureate feels the decline is due to a multiple of factors, some of which can be traceable to the failed Trickle Down economic policy set forth at the start of the 1980s. Significant reduction in tax rates under President Reagan set us on a course where the “haves” added greatly to their wealth and income, while the “have-nots” stayed flat, even while productivity climbed.

This echoes what I have read elsewhere which can be described by placing two arms out in front of you, one at an upward angle, with the other straight out. The straight out arm reflects what has happened in income to the significant majority of people, while the upward arm shows what happened to the upper-end earners. So, while a few of have done very well, many have not participated in the economic growth.

When this trend is coupled with deteriorating inner cities, the lack of targeted investment to rehabilitate areas of plight due to budget restrictions, the continued fall in education rankings which has occurred over time, the continued maltreatment of African-Americans where opportunity is denied and the introduction of crime as economic enterprise, the problems are exacerbated. If you season this, with the segmenting of society into market segments to sell products, services, news and politicians, we do not see the forest for the trees. We must also understand that poverty is the absence of money and is not due to being less virtuous, less hard-working or more prone to substance abuse.

Rather than belabor my opinions, please read more about Stiglitz’s thoughts as reported in the Business Insider: http://www.businessinsider.com/nobel-laureate-joseph-stiglitz-2015-4. Here is someone who should be listened to rather than people giving pat solutions to complex problems.