Tuesday, June 26, 2018

Let's Slow It Down A Bit, Folks


I have heard from a lot of trump supporters crowing about the economic news. Stock market at record highs. Repatriation of funds. Tax cuts. And so on. And while my first instinct as a rational, thinking being was to start picking these apart as lies and propaganda, I decided to look a little deeper. So I did.

It's all lies and propaganda. However, it's not a trump thing.

Here's the thing. Almost without exception, previous administrations have made economic policy based on how it's going to affect the next election. Economic security is high on the list of to-dos during a president's first term, and going into the midterms on the second term, but that last election ... well, they're term-limited, and they have a sweet pension, so what do they care?

In this way, President Obama was an outlier (or, if he wasn't, he made it look like he was). Following the crash of 2008 (for which some of the more ridiculous trumpeters try to blame Obama, even though it happened four months before he took office), Obama instituted measures that turned the economy from negative to positive in a controlled, measured fashion. Using a combination of stimulus packages and close collaboration with the Federal Reserve, we ended up with a recovery that was slow, steady, and thoroughly unexciting.

Contrast this with the 90s. We were coming out of a recession at the beginning of President Clinton's first term, and he presided over an unprecedented period of expansion in our economy -- which lasted until early 2001. Then it all started to crumble, with some causes being internal (the internet bubble bursting, for example) and others being external (9/11, which shut down Wall Street entirely for a week). Bush administration efforts to shore it up largely failed, primarily due to a fundamental lack of understanding of what they were doing.

Quite frankly, I want a boring economy. Boring economies are stable economies. Exciting economies are inherently unstable, and we are seeing this now, with wild swings in the stock market on a day-to-day basis being only the most visible indicator.

When I was a teenager, a skateboard was my main mode of transportation (stick with me here; this analogy will make sense in a minute). One day I was riding down a long, steep hill, getting up a pretty good head of steam, when I started to experience the Wobble of Death (anyone who has been on a skateboard knows what I'm talking about). I tried locking my ankles, but it had gotten too severe. I ended up eating pavement and breaking my left wrist. The next time, though, I tightened up the trucks (the axles that also contained rubber bushings allowing me to steer) on the skateboard, and everything went just fine.

Our economy is like that skateboard, and regulations on the banks are us tightening the trucks. Prior to 2008, we had loosened the trucks. This made the economy more maneuverable and able to respond quickly, but with the added risk of a loss of control in extreme conditions. After the crash, Obama tightened the trucks and, while the economy was not quite as agile, it was steady, and safe, and cruising along nicely.

In the past year and a half, the trump administration has rolled back some banking regulations and loosened others. This has the effect of making the economy as a whole more agile, but now we are starting to see indicators that maybe we are starting the Wobble of Death -- the Dow up by 500 one day only to fall by 350 the next and climb by 250 the day after that -- and if so, a crash is not too far behind. If this administration holds true to the behavior of almost all of the previous ones, what we will see is an economy that goes gangbusters until shortly after the 2022 midterms, at which point it will start to unravel and it will be incumbent on the next person to hold the office to clean up the mess.

What I would like to see is economic policy that takes a longer view, beyond the next election. I would like to see someone adopt the same approach as Obama: keep growth under control so it doesn't run away from us. To achieve this, we need to take the following steps:
Restore full employment
This can be accomplished by the Federal Reserve adjusting interest rates to curb inflationary pressure until wage growth has stabilized and grown stronger. Congress and the Executive Branch can contribute to this by making public investments (infrastructure, for example) that can both create jobs and spur future productivity growth.

Enhance and enforce labor standards
Low and moderate wage workers are seeing the lowest level of collective bargaining power since the creation of the Fair Labor Standards Act of 1935. By decimating unions and implementing "Right to Work" laws (which are actually "Right to be completely screwed over and get no benefits" laws), conservative lawmakers over the past few decades have almost completely erased gains in the lower ends of the economic spectrum that led to the booming economy of the postwar years (1946-1957), one of the most prosperous periods in our nation's history.

Policy actions such as a higher minimum wage, expanding rights to overtime pay, paid sick leave, protecting the labor rights of undocumented workers (you know, to do those jobs that nobody else is willing to do), and restoring collective bargaining rights will help in this effort, as well as renegotiation of trade treaties that provide incentive to offshore jobs.
We can maintain a healthy economy. All it takes is a willingness to take a longer view.


I gotta lie down.

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