Class Warfare Blog

May 5, 2017

Egad, Economic Uncertainty is Real!

During the recent Democratic administration, Republicans often ranted about “uncertainty” with regard to investment. You see, the economy tanked in 2008 and the recovery was feeble (still is). Banks were given huge amounts of money at zero interest with the hope they would loan that money, cheaply but profitably, to businesses looking to expand. The key word was “hope” in that the government attached no strings to those zero interest loans. Consequently the banks bought securities with the money, causing the stock market to “recover” rapidly but no one else. When upbraided about this anti-social behavior, the Republicans countered with there was “too much uncertainty” in the market for business to expand. They rather should have stated there is too much bullshit in politics; that would have been closer to the truth.

The real reason businesses did not expand with all that cheap money around, is that they possessed even cheaper money (U.S. businesses had $2+ trillion dollars in cash reserves at one point.) and they weren’t spending that either. The reason? Simple: no demand. This is shockingly self-evident for people who know nothing about economics other than “supply and demand.” If there is no demand, supply is irrelevant (even though some economists tried to claim the opposite—see Say’s law). There was no demand because those business’s customers were broke, still are.

So, when Mr. Trump was elected and the GOP captured both houses of Congress, well … “Happy days are here again, the skies …” uh, no? No. Even though gasoline is quite cheap now, no one is buying much. Retail business are offering lower and lower pricing and still no surge in buying.

People are sitting on the sidelines economically because, well, they are uncertain about the future. When a person’s future is potentially very bad, they hunker down, save their money, and prepare for the worst the best they can.

Mr. Trump’s policies have never been particularly coherent, which was by design. When Mr. Trump claimed he was going to deport 11 million “illegals” from the country, many people translated that into “I will have more job opportunities.” (Right, by picking crops and doing day labor out of the local Wal-Mart?) When Mr. Trump claimed that he was going to transform Obamacare into something better, people applied their own definitions of what “better” meant. But healthcare is a complicated subject (“Who knew?”) and Mr. Trump’s party’s first effort at it was horrifically negative. (Hunker, hunker, hunker,…) Then there was the “tax reform” promised. People thought “my taxes will go down” and “I could use the money.” What they didn’t think of was that rich people’s taxes would go down much more, thus reducing government tax receipts, causing many government programs to be terminated, government programs that ordinary citizens are dependent upon, of course, not the rich. (Hunker, hunker, hunker,…) Then the current administration launches missiles in Syria and threatens nuclear war in North Korea. (Hunker, hunker, hunker,…) and….

The economic uncertainty of businesses as a reason for why they weren’t investing in their own businesses was pure political spin. They were anything but uncertain, in fact they were absolutely sure there was no demand, so no expansions. But the economic uncertainty of individual citizens is palpably real. We are not spending much money right now because we don’t know whether we will have affordable healthcare available, whether Social Security will still exist, or Medicare … all of these have been threatened by the GOP.

All of these threats are coming home to roost. We are in line for another recession, possibly as early as this summer. The ordinary tools used to combat recessions are not available (cut interest rates … why? … how?) and the GOP is dead set against deficit spending (the tool that really works) unless it enriches the rich or the military industrial complex.

Buckle your seat belts, folks. If you think things are uncertain right now, well, winter is coming.

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