Economics was never my favorite subject. Back in high school years ago, it was a required course and, although we had a very good teacher, it always reminded me of how a famous poet once described how he saw the study of law, as “like eating sawdust."
Yet, however dry or tasteless it may seem, economics strongly impacts all our lives. Everything from how goods are produced and distributed to how wealth winds up in the hands of a few instead of many, occurs because of economics.
This leads to a concern about where we find ourselves right now. For despite a lot of talk about a “10-year-old economic expansion” and record highs on Wall Street, there are warning signs that we have some rough waters ahead that we may not be well positioned to handle.
Start with the trade war with China that President Donald Trump a year ago promised would be “easy to win.” Resulting tariffs are costing American producers and consumers billions of dollars in additional costs on imported goods -- from ball bearings to washing machines. Farmers and farm industries like Deere & Co. are being affected by the loss of Chinese markets that bought American produce and equipment -- resulting in more farm bankruptcies than any year since 2012.
Although unemployment is at near record lows, workers’ wages have not materially increased. This defies usual economic rules that say wages should go up when unemployment goes down. Problem is, many of the new jobs are part-time or temporary or in service areas that don’t pay much.
Meanwhile, in manufacturing -- where traditional middle class jobs flourished, especially in the Quad-Cities and throughout middle America -- the economy is officially in recession. This is defined as occurring when we have two successive quarters of shrinkage, which we have seen since Jan. 1.
As for Wall Street, record highs have been substantially fueled by the 2017 tax cut that went largely to wealthy folks and corporations instead of creating good jobs and reducing the deficit as Trump and his followers in Congress promised. Much of the tax savings were used by corporations to buy back their own stock. This artificially drives up the value of remaining shares and pushes the market higher.
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At the same time, our federal budget deficit soars. It is projected to reach $1 trillion next year, largely because of the same tax cuts. Since deficit spending is often used to help RECOVER from a recession -- as happened in 2008 and 2009 with the TARP 1 and TARP 2 programs -- running up big deficits now when the economy is supposed to be strong, is a little like spending rainy day money on a sunny day.
What does all this mean? Well, if economics is the “dismal science” as some contend, it is also an inexact science. Yet it does seem likely we’re in for some trouble ahead. And when it happens, some of our usual tools to fix it won’t be available. Deficit spending? Done that and we already are in deep water. Lower interest rates? Done that too -- even though Trump wants further cuts to gin up the economy. And growing trade wars and nationalism make working with others to solve any new global recession much more difficult.
The prospects aren’t particularly rosy.
Yet my father used to say that “We’re not given problems we cannot solve.” Though it won’t be easy because of the holes our leaders have dug, answers are there.
More responsible tax policy that takes back the giveaways to the very wealthy represents a start. Getting back to being a world leader by working with our allies to build markets instead of shrinking them with trade disputes will also help. And investing in our nation’s deteriorating infrastructure -- from schools to bridges and railroads -- in a sustainable way is a third important step.
But it will take all of us working together to make it happen. As a nation, we’ve done pretty well at this in the past. It will be essential for the future.