By Dan Calabrese
This is as predictable as the sun rising in the east, whenever there is a Republican in the White House. If the economy is strong – as it is right now – the media will instantly shift from complaining about how bad things are to doomsaying about what surely lies ahead in the very near future.
Maybe the economy is good now, but the recession is coming!
Some think it’s possible to talk the economy into recession simply by convincing people not to spend, invest or produce. Some might even suspect there are those in the media and Keynesian economic circles who feel motivated to do this in order to not validate the policies of Republican presidents.
With a quarter of 4.1 percent growth just under our belts, we’re hardly going to believe the media’s claims that things are bad now. And they know that. So they’ve shifted into just-you-wait mode, as they always do:
Economists are revising up their projections for growth in U.S. output this year, but disputes with U.S. trading partners, a fading boost from fiscal stimulus and rising short-term interest rates leave them thinking strong growth won’t last much longer than that.
The average estimate for growth in 2018 reached 3%, up from 2.9% last month and up from 2.4% a year ago, according to The Wall Street Journal’s monthly survey of private economists. The average forecast predicts by the middle of next year the unemployment rate will drop to 3.6%. If the forecast is realized, it would be the lowest unemployment rate in nearly 50 years.
Consumer spending and business investment were robust in the spring, thanks in part to tax cuts that put more money in household pockets and gave businesses a higher after-tax return on their investments.
“The tax cuts and jump in federal spending will keep the economy buzzing for another 12 months,” said Bernard Baumohl, chief economist of the Economic Outlook Group. “Beyond that, however, I expect to see dark clouds forming that would signal a recession is near.”
Mr. Baumohl isn’t alone in a dour outlook after the boost from last year’s tax cuts begins to fade and because rising tariffs between the U.S. and its trading partners could lead to repercussions for the economy. Businesses that were enthused about the tax relief could hold off from hiring and investing in the face of trade uncertainty, several economists said.
Let’s examine the crux of the doom-is-coming forecast. First, they assume much of the growth is being stimulated by federal spending, and that they is likely to stop. I don’t know why they think federal spending will slow down. I wish it would. But federal spending is not appreciably more than it was under Obama and growth has been much faster. Why should anyone think that’s the difference? The variables are tax rates, regulation and domestic energy production.
About that: They think the “boost from last year’s tax rates begin to fade.” How exactly do they think the boost from the tax cut works? The reason tax cuts are boosting the economy is that they’ve freed up private-sector capital to be spent and invested more productively. That is not going to change next year or the year after that. Companies are not going to return to paying 35 percent of their earnings to Washington. They’ll continue spending and investing it more productively than they did before.
As for interest rates, it’s true that they’re rising and will continue to do so. But the conceit of the central banker is that it’s been low interest rates to this point keeping economic growth above water. Low interest rates are a double-edged sword. They lessen the burden on borrowers but they also do less to reward savers. They also paper over the true cost of the deficit. When interest rates more properly reflect the state of the market, there is no reason to think that will retard growth.
Finally, tariffs: Now here I agree that you could have a factor that limits growth, but that assumes we’re going to have a trade war that lasts for years as opposed to some short-term shots across the bow that come to an end when new trade deals are negotiated. I remain on record as believing tariffs to incentivize new trade deals should never have been an economic priority of the Trump Administration, but I also believe they’re a short-term gambit and we should not expect bloated tariffs over the long term.
The fact of the matter is the economy can continue to grow at a healthy pace if the private sector is allowed to lead it. And if the government gets out of the way with it taxes, regulations and currency manipulation, the private sector will lead it.
But it’s good to have the media’s predictable confirmation that the present economy is strong under a Republican president, and all they’re left to do is predict imminent disaster.
Dan writes Christian spiritual warfare novels and does all kinds of other weird things too. Follow all his activity by liking him on Facebook!