As the year ends, it’s time to take a look at the state of the economy.
There’s a wide gap between what is happening now and what lurks beneath the apparent prosperity.
The economy is flourishing as corporations enjoy benevolent government policies and reduced taxes. The stock market reveals a persistent optimism and keeps climbing. It’s considered bad news when a company earns good profits, but might have done better.
A strong stock market rewards investors and should improve retirement accounts. That makes people feel more secure and assured about their futures.
The economy needs more workers than are available, so unemployment falls and wages rise. That’s a positive sign for job-seekers. But it may deny growth to employers short of workers.
The low jobless rate has begun to push up pay as employers compete for scarce workers. That’s one of the goals of the Federal Reserve in favoring mild inflation.
But the Fed also wants to keep interest rates low to allow businesses to borrow and grow. Low rates translate into more consumers buying homes and autos.
Like any incumbent president, Trump takes credit for the economy, though he probably should share it with Congress and the Federal Reserve.
The key elements of the Trump era economic policy that contribute to the economy are increased government debt, tax cuts and reduced environmental regulation.
The GOP historically opposed deficits, because they increased debt to be paid by later generations. It also opposed government spending to stimulate the economy. All that has changed.
The federal budget has no discipline. The only difference between the free-spending, low-tax political parties is that Republicans focus on military outlays and Democrats favor social programs.
While the GOP fought Obama’s efforts to add more economic stimulus spending, it now joins the Democrats in such massive deficits that they are doing just what they had opposed.
These seeming boom times are putting a lot more money in the hands of consumers. Their spending accounts for about 80 percent of the economy. They are piling up more debt. Spending is unusually high, so if it declines, the economy is likely to do so as well.
The problem with this economic high is that the underlying cost is obscured. As almost everybody knows, you cannot indefinitely pay for instant satisfaction by borrowing ever increasing amounts of money. What’s more, your immediate desires may not correspond with your real needs.
Eventually paying off government debt becomes so big a part of the budget that either taxes must be increased or essential spending must be cut. If you consider the condition of roads and bridges, we may have already reached that point.
Prices for what consumers want will increase. While China must be forced to trade fairly, consumers should not be pushed to pay much higher prices resulting from the tariffs imposed on imports from all around the world. Higher prices will reduce consumer spending.
Cutting back on environmental regulation may help corporations boost their profits, but at great cost in quality of life. Trump says he favors clean air and water. That’s good, but what about drought, fires and flooding as the Earth’s temperature climbs? Merely denying science is not an answer.
While low unemployment is always a top goal, what happens when you reach it? Corporations and the wealthy get tax breaks so they will invest to create jobs. But that should not entitle them to perpetual tax breaks, leading to more government deficits, even after unemployment is almost eliminated.
Low unemployment may turn out to be a problem. Without more workers, business cannot grow, becoming better able to meet needs of the domestic and export markets. Natural population growth is so slow it hardly replaces retiring workers.
Right now, the U.S. has no immigration policy other than “keep them out.” A sound policy would allow for the entry of people with needed skills and, as throughout the nation’s history, people hungry for work and anxious to learn.
Immigrants are customers for a growing economy, new contributors to Social Security, and the labor business needs to expand. If the U.S. closes the door on the economic growth that comes with a larger labor force, it’s difficult to believe the current prosperity can last.
Government spending, the environment, immigration, tax policy and trade wars may menace the current prosperity. Economic history shows that expecting the good times to roll indefinitely is mistaken.
The question during good times is not merely how to keep them going, but also how to prepare for difficult times ahead – times of higher prices, huge debt and global warming.