Few economists disagree that the nation faces a recession. While some economic indicators appear still rosy, business investment continues to fall. This indicator is key in measuring business confidence that investments will pay off with economic growth as contrasted to nervousness and coasting with the status quo.
Panic has permeated inner circles, as policy makers and legislators scramble for yet another financial
prescription. Increasing the national debt, which provided the recent expansion, is a prescription that has been exhausted. For example, the trade war with China will certainly make it less likely that China, which owns a lion’s share of our national debt, will continue to renew or purchase U.S. debt. Furthermore, even if purchasers of U.S. debt can be found, it will be at a higher cost.
The higher cost of interest payments in the federal budget will reduce oxygen in the room for implementing reforms promised by presidential candidates. Thus, those expecting major public improvements for health care, clean energy and similar programs will discover difficulty. The president is claiming that continued prosperity is just around the corner, which eerily echoes former President Herbert Hoover’s false prophesy 80 years ago as the nation plunged into the Great Depression.
A second administration prescription is using tariffs to encourage the production of more goods at home. This approach has dubious promise. Recent interviews and reports on National Public Radio reveal that corporate executives favor moving production to other low-wage countries, like Viet Nam and Thailand or, in fact not moving at all. Recent economic projections indicate that existing tariffs will cost a typical family around $450 annually and consumers will likely have to absorb it.
A third administration prescription is allowing corporate mergers and increased concentration with the hope that increased size creates efficiencies that are passed down in lower costs. However, as recently reported in the Wall Street Journal, Europe has opted for more competition, not less, to benefit consumers. For example, French consumers in 2014 paid 27 percent less for telecommunications services than in the U.S. due to increased competition. Overall, as noted by Thomas Philippon, a New York University economist in a new book published by Harvard University Press, “declining competition has raised profit margins and prices while reducing workers’ share of national income in the U.S.”
Spin doctors are now busy assigning blame for the mess, and the convenient targets are always those who are disenfranchised and powerless, namely low-income families. In an analogy similar to combating drugs, the issue on the table is whether the culprit is the recipient (user) or the provider (pusher/seller).
In a revealing recent Associated Press report, it was noted that “after a full decade of uninterrupted economic growth, the richest Americans now hold a greater share of the nation’s wealth than they did before the Great Recession began in 2007. And income growth has been sluggish by historical standards, leaving many Americans feeling stuck in place. Fewer middle-class Americans own homes.
Fewer are invested in the stock market. And home prices have risen far more in wealthier metro areas on the coasts than in more modestly priced cities and rural areas. The result is that affluent homeowners now sit on vast sums of home equity and capital gains, while tens of millions of ordinary households have been left mainly on the sidelines.”
This leads into another prescription called the “wealth tax” that would tax privileged families with perpetual fortunes over $50 million. This would be an effort to change the culture in our society, which currently caters to those with excessive wealth who believe what they have is never enough.
Without question, the impact is huge and will have long-term repercussions. Since West Virginia’s economy typically rides the surf on the last wave, the economic impact has been temporarily camouflaged by the energy boom. However, those at the bottom of the boat are already hurting due to higher prices for utilities, wiped out retirement savings and lack of employment in key industries like coal. The fact that today there are over 10,000 children attending public schools in West Virginia who are homeless is a tragedy. The downward spiral will, in turn, cause further economic decline for many as the state spins further into the economic apartheid phenomenon of concurrent but separate economic systems.
All of the prescriptions cost money. The fairness question is whether people at the bottom should have the equal opportunity to be subsidized or bailed out as those who profited to get to the top. The economic question is how to pay for any prescription, which brings clearly into focus whether we can rediscover the wisdom in American history when Franklin D. Roosevelt declared in his second inaugural speech that “government by organized money is just as dangerous as a government by organized mob.”