Economic expansion has been squandered
This summer the nation is expected to celebrate an impressive milestone, the longest economic expansion in the nation’s history. Beginning in the wake of the Great Recession, it will surpass the 120-month record, recorded from 1991 to 2001.
It fills me with dread.
Why? Because this expansion has been squandered, leaving individuals, and the nation collectively, terribly vulnerable when the next recession arrives.
An expansion this long should have been an opportunity to grow the middle class, for families to build up financial cushions, and for the nation to begin cutting into the debt. None of that has happened.
“Another year of economic expansion and low national unemployment rates did little to narrow the persistent economic disparities by race, education, and geography,” notes the Federal Reserve in its latest report on household fiscal well-being.
The same report found an American working-class highly dependent on maxed-out credit, with four in 10 people saying they wouldn’t be able to scrape together $400 to meet an emergency expense.
In many ways, they mirror their government.
Over the coming decade, the United States ranks first among advanced economies in the projected growth of its national debt as a percentage of Gross Domestic Product. Projections show debt rising from 78 percent of GDP now to 92 percent by 2029. If various set-to-expire tax cuts and spending hikes are continued, which is usually the case, the debt will be 105 percent of GDP come 2029.
Many other advanced countries project debt reductions, Germany as high as 10 percent.
What happens when a recession hits? People lose jobs and need a financial cushion to meet minimal expenses. Despite the record expansion and an employment rate of 3.6 percent that is the lowest in 50 years, many Americans don’t have it.
In recessions deficits get worse as government must provide unemployment benefits, demand for social programs expands and federal spending is necessary to try to restart economic growth. Yet in good times, the country is facing explosive growth in deficit spending.
The nonpartisan Committee for a Responsible Federal Budget warns that If the debt continues to climb, at some point investors will lose confidence in the government's ability to pay back borrowed funds. They would demand higher interest rates on the debt, and at some point, rates could rise sharply and suddenly.
Both major parties share the blame for this situation, with tax revenues covering only two-thirds of federal expenses, the rest going on the national credit card.
However, the Republican initiative, when in control of the House, Senate and presidency, to approve massive tax cuts in 2017 was particularly reckless. There was no need to spur the economy, it was already growing. There was no attempt to offset the tax cuts with spending reductions.
No wonder, then, the deficit is rapidly expanding.
A new Congressional Research Service report concludes the tax cuts had little impact on overall economic growth and instead exacerbated the growing gap between the very rich and the rest of us. They provided a corporate windfall.
“From 2017 to 2018, the estimated average corporate tax rate fell from 23.5% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%,” states CRS.
The tax cuts contributed to a record-breaking surge in corporate stock buybacks, CRS found, but little in worker wage growth.
As for the tax cuts paying for themselves, the CRS found they produced an increase of 0.3 percent in gross domestic product in 2018, at most. To pay for themselves, an increase of more than 6.7 percent would have been necessary.
Our best hope? The expansion continues — forever.
Paul Choiniere is the editorial page editor.
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Barbara Dalio was remarkably unassuming. She did not reek of rich. If she had met me for a business lunch at a Chili’s Restaurant, she would not have looked out of place.