“Trump Recession”

A specter is haunting the market – the specter of a “Trump recession.” This specter is certainly spooky. The self-described Tariff Man, misusing the authority that Congresshad unwisely delegated to the presidency, has recklessly waged a “trade war” by tweets. Under Trump, the US tariff levels have been hiked to emerging market levels, costing the average US household an estimated $1,000 per year. Worse, the sheer unpredictability of the course of the trade war has prompted corporations worldwide to postpone investment, slowing economic growth. If not counteracted now, it may even trigger a recession.

Manufacturing recession is in fact already here in the United States, whose industrial sector has experienced two consecutive quarters of contraction — a common definition of recession among economists. Countries whose economies are more dependent on trade than the US — like Germany and South Korea — are even closer to outright recession.

Unleashing tirade after tirade against Federal Reserve chair Jerome Powell, Trump hopes to cue people to blame the Fed, not him, for any downturn. Nobel laureate economist Joseph E. Stiglitz, however, reminds us: “Large corporations are still sitting on hoards of cash: it’s not a lack of liquidity that’s stopping them from investing.”

What can help prevent the looming global recession? For once, the Wall Street Journal editorial board has sensible economic advice to give: Trump “can cut his trade-uncertainty tax. This is the pall over business investment that is a major result of his trade policies.” But if Trump were a man who could take advice, we would not be where we were today. In committing the latest trade-war escalation, he overruled all his economic advisors except China hawk Peter Navarro, according to a Wall Street Journal report.

Face it: Trump is acting like a dictator who rules by decree, and Congress is letting him get away with it. This has to stop. Congress must either take back tariff authority from the president or impeach him . . . before it is too late.

Secular Stagnation

In the meantime, can the Fed put a band-aid on the bruised world economy? Powell at Jackson Hole measured his words carefully: “There are . . . no recent precedents to guide any [monetary] policy response to the current situation” of “trade uncertainty.” Stiglitz is also skeptical: “If lowering the interest rate from 5.25% to essentially zero had little impact on the economy in 2008-09, why should we think that lowering rates by 0.25% will have any observable effect?”

As a matter of fact, real interest rates have been declining since the early 1980s, and yet economic growth rates, rather than rising in response to the monetary stimulus, have been falling too, in the United States as well as the rest of developed economies. This trend of secular stagnation used to exercise only left-wing economists, but today economists as mainstream as Lawrence H. Summers have made it one of the most urgently debated problems of political economy.

Summers now says — and we agree — that ingenious monetary policy alone cannot make up for an absence of fiscal and other policies to address chronic excess of saving over investment and resulting deficiency in aggregate demand. Instead, we had better recognize the limits of monetary policy and adopt “structural measures that reduce saving or promote investment,” such as “strengthening social security” to “reduce the need for retirement saving,” and “policies that redistribute income from those with lower to those with higher propensities to consume,” i.e. from the capitalist class to the working class.

If only Summers had advocated such progressive policies when he was in positions of power at the World Bank, in the Clinton and Obama administrations, etc., instead of helping spread the very neoliberal policies that have contributed to “excess saving” that he now decries! Missing from mainstream economists’ accounts like Summers’ is a history of “class struggle from above” (in which they are complicit) that has concentrated more and more “saving” in the hands of the few.

What would it take to liberate that “saving” from the rich few who have monopolized it and failed to invest it productively? Class struggle from below, and that’s exactly what an increasing number of US workers have been practicing. The Bureau of Labor Statistics reports: “In 2018, there were 20 major work stoppages involving 485,000 workers. The number of major work stoppages beginning in 2018 was the highest since 2007. . . . The number of workers involved in 2018 was the highest since 1986. . . .” Let us not allow this promising trend to be cut short by an avoidable “Trump recession” caused by the trade war that no sane American asked for.