A Really Uneasy Feeling – It’s The Stupid Economy

What goes up must come down? But when? How much? How fast? How long? My friend Dennis Duitch’s (Dennis Duitch Consulting) May 4^th blog: “AMERICAN RECESSION ‘WILL OCCUR WITHIN TWO YEARS,’ according to more than 80% of 300 execs representing some $13 Trillion in balance sheet assets of insurance companies, surveyed recently by Goldman Sachs. Over 70% are unconcerned about Inflation, but over half see the U.S./China trade conflict as ‘the greatest risk to investment portfolios over the next twelve months… stemming from market volatility as the economy is in last stages of the credit cycle.’ [PENSIONS & INVESTMTS – 4/24/19] Countrywide, nearly 90% of American companies concur that Inflation is not a current expectation, with seven in ten planning to increase base pay by 3% maximum, and two in ten planning zero raises. [CFO MAGAZINE – Apr/May 19]”

But what if the China trade conflict is resolved exactly the way Trump predicts? Don’t hold your breath, but even a bad trade agreement will Trumped into “the best trade agreement ever,” even though it isn’t. Yet things are so good. The stock market. Consumer spending. Credit is still cheap for corporate America (not for the rest of us, though). On May 3^rd, the Bureau of Labor Statistics showed that “the economy produced 263,000 new jobs [in April], average wages rose at a solid pace, and the nation’s unemployment rate fell to 3.6%. That’s the lowest in almost 50 years.

“The news bolstered President Trump, for whom a strong economy provides a necessary — but perhaps not sufficient — basis for reelection. Trump cheered the report, declaring in a Twitter message: ‘JOBS, JOBS, JOBS!’… The number of jobs in the economy has now grown for 103 months — a record — at a remarkably steady rate through two very different presidencies.

“All that deepens two of the great conundrums of the Trump presidency: How does his approval rating stay so bad when the economy is so good, and what might that forecast about his prospects for reelection?” Los Angeles Times, May 4^th. When you have a candid discussion with economic experts, even when you talk to ordinary people about their longer-term feelings about keeping their jobs and rising to new earning levels, there’s lots of pessimism, a feeling that a big shoe is about to drop. A few will remind you that the recovery that seems to have lingering elements actually began during the Obama years, that Trump was happy to take credit for what he most certainly did not begin. But he kept those numbers strong.

From abstract discussions about the expected impact of accelerating artificial intelligence on the job market, the increasing fears associated with a $1.5 trillion mass of student loan debt, rising income inequality as too many CEOs are now earning a multiple of well-over a thousand times their median workers income combined with a deficit-busting tax cut for the rich that profoundly underdelivered, sector uncertainty (e.g., automotive and climate-change impaired agriculture), uncertainty in trade relations and a spate of mergers and acquisitions with layoffs just beginning… to the elephant in the room: a beleaguered, amoral, mendacious president, long on gut instincts and very short on facts adopting a revolving door policy favoring doctrinaire sycophants.

Economists will are also quick to point out that statistics based on averages, like the GDP numbers, are distorted when those at the top make disproportionately even more money, when tax cuts jack up corporate earnings without major improvements in productivity and when rising costs and falling benefits reduce the net spendable earnings of the majority of working Americans.

There are very few remaining adherents of the American Dream; for those in the lowest economic quartile, the prospects of rising into the middle class are a dismal 14%. With over half the youngest entrants to the workforce with at least some college education, competition for the really-good jobs has never been more fierce. Yet housing in solid job markets is absurd and student loan debt has cut consumption and delayed life decisions like no other generations since the Great Depression. These younger, rising generations do not expect job security or that they have a chance to raise their standard of living above that of their parents.

Mortality rates, suicides from untreated disease or healthcare bankruptcies are the highest in states that voted for Donald Trump; they were states that fought the Affordable Care Act, refused Medicaid expansion and sought exemptions against coverage for preexisting conditions and lifetime benefits without a cap. But his base still believes. Deductibles, co-pays and premiums are rising even as the Trump administration has filed supporting briefs in support of a declaration that the Affordable Care should be declared unconstitutional, the finding of a lone federal judge in Texas. They tout a replacement pejoratively labeled “TrumpCare,” but there is absolutely no such plan proposed anywhere. Even Medicare and Social Security are on the chopping block.

As a backstop to the potential of an elusive recession, one that has been around the corner for months but hasn’t really sunk its teeth into the economy yet, Donald Trump is hyping alternative platforms: like his diplomatic triumphs, but one only has to scratch the surface to reveal that there really aren’t any. ISIS, now stateless, is still blowing up innocents. Bromance partner Kim Jong-un hasn’t cut his nuclear stockpile one whit or reduced his ballistic missile capacity. In fact, he’s back to testing shorter-range missiles aimed at his neighbors. Vladimir Putin is still moving towards annexing eastern Ukraine as Russia hones its election interference skills based on their rather dramatic recent success. Even US efforts in Venezuela, against a dictator everyone seems to hate, have failed. And so on and so on.

Trump also continues to make the border situation worse to justify money for his vanity wall. His zero-tolerance policy is unaffordable, has produced the opposite result: after years of declining undocumented immigration, massive caravans of asylum-seekers – sensing a “now or never” mandate to cross because they feel Trump will somehow end that possibility in the near term – continue to bring a growing number of refugees to the Mexican border. He has made removing and stopping immigrants from the United States, some even legal, the cornerstone of his reelection campaign. He seems to sense that his reliance on a “strong economy” is not enough, even though economic factors have generally predicted who wins elections.

“At least since the end of World War II, economic growth rates have lined up strongly with the vote share received by the president’s party… Two factors appear to have held down Trump’s ability to benefit as much as his predecessors might have: his personal conduct and the nature of the current economy.

“A large share of American voters find Trump repugnant, and for them, no amount of good economic news will change their view. They’re numerous enough to make a close election in 2020 highly likely… Beyond that, the uneven nature of current prosperity gives Democrats an opening to argue for spreading the wealth more equitably.

“‘The moral obligation of our time is to rebuild the middle class. When the middle class does well, everyone does well,’ former Vice President Joe Biden, the current Democratic front-runner, told audiences in Iowa this week… Regardless of whom the Democrats nominate, the candidate probably will use some form of that argument.

“It’s a case that finds a receptive audience among many voters. A recent Washington Post/ABC poll found that by nearly 2 to 1, Americans said ‘the economic system in this country mainly works to benefit those in power,’ rather than ‘all people.’ Democrats overwhelmingly took that view, but so did about a third of Republicans, the poll found.

“Still, Trump had been noticeably worried in the fall and earlier this year by the talk among economic forecasters about a rising risk of recession, and those worries dissipating has been a great relief to the White House.” LA Times. The almost two dozen declared Democratic presidential candidates, the in-fighting and the dilution of a unitary message – progressives versus moderates – have to give Trump some solace. That his lock-step GOP, now feeling that they cannot get elected without Trump’s base, controls the Senate almost certainly guarantees that he cannot be removed from office by a Congressional conviction even if there is impeachment, is equally reassuring.

On the other hand, New York State – not restrained by federal restrictions – seems to have been able to secure reams of Trump’s financial records from Deutsche Bank, despite a Trump lawsuit attempting to stop that effort. Could that effort unravel the president? Can Trump delay the siege, the investigations? Is his all-out legal challenge to the litany of congressional subpoenas likely to produce his desired results? Will the Supreme Court imbue the executive branch with clear superiority over the legislative, thus eroding the separation of powers? Lots of questions. Not too many clear answers. And economies tend to fester in eras of profound uncertainty.

              I’m Peter Dekom, and if these economic factors don’t take us down hard, can we still diffuse the lingering sociopolitical polarization reminiscent of the events leading up to our Civil War?