New York, NY–
“The fundamentals of our economy are strong. They’re getting stronger.” — 2008 Presidential candidate Sen. John McCain.
A sentence uttered that along with the events of the financial collapse, ended the competitive portion of the 2008 Presidential election campaign. Oh, how far the country has fallen since those days….
This site has often analyzed through its different formats the culture war and generational politics. While we have differed often on if the so-called “culture war” we have been relatively unanimous in agreeing (often loudly) that the country and especially the Democratic Party needs serious generational change in its leadership and downward. I won’t get into the particulars of those arguments here.
Throughout some of the Obama years it looked like we were legally settling many of our long-standing culture war issues, which is ultimately where they should end up (freedom wins out across the board, etc.) but the events of this past week have thrown that into severe doubt, if not outright professionally wrong. Make no mistake that if President Trump nominates a reactionary “conservative” that waxes philosophic about originalism, landmark decisions like Roe are likely to be overturned or at the very least, severely chipped away at. If you live in a state that doesn’t have the abortion right codified on the books, as is the case in the “blue state” of New York, I’d start lobbying your state legislature now.
With the once seemingly dying “culture war” getting exacerbated with sheer fire and brimstone by the 2016 Trump campaign, his subsequent presidency, and perhaps most accurately, the internet, where do we go from here? When does the slow pace of generational change finally overwhelm our political system? When can we move on from this 50/50 everyone hates everyone, but civility only selectively applies nightmare? For one, I think this is the new “normal” for a long time, so for your own well-being, batten down the hatches and prepare for the long storm. Finally, let me propose a thesis that will get us all thinking about the economics and foreign policy issues that dominated the 2008 presidential campaign primaries and general election — not the Great Recession, but the upcoming Great(er) Recession of 2021 to… we’ll see.
In a previous article I alluded to the grave political mistake Democrats have made in conceding to the President and GOP that this is a good economy. It is foolish to concede this because not only is the economy not good, this is unfortunately the best it’ll be for some time. We’ve had unevenly distributed secular sluggish growth for nearly two decades now, which will only fuel billionaire and millionaire appetites for more corporate tax giveaways. See below.
President Bush was the first modern day president to never preside over 4% annual growth in GDP.
President Obama was the first modern day president to never preside over 3% annual growth in GDP.
For comparison sake, below is our robust post-war period of relatively shared prosperity.
Admittedly, much of it was made possible because the rest of the developed industrialized world had been devastated and war-torn.
A regression and slowing of the post-war growth was inevitable, but the structure and soundness of the American economy going from a middle-out economy to what we have today was not. It was preventable.
President Trump, despite his boasts, will also fail to preside over 3% annual growth whether he serves one term or two. See below.
The only thing that I would amend is the guarantee that 2018 will be as strong or stronger than 2017, because this forecast did not account for the effects of the tariffs, which have especially hit the areas where his strongest supporters reside.
Make no mistake — the fundamentals of this economy are not strong and have not been strong for decades unless you’re a billionaire or a comfortable member of the new professional class aristocracy.
So what is the story behind these numbers and why will this recession be even greater?
These five things I think will happen:
- The Dodd-Frank partial repeal (of small-to-mid-sized bank lending ceilings) will continue to spur new real estate, housing, and mortgages (and by extension, mortgage-backed securities). The job market and unemployment being low will work in tandem with this. This is a good thing right?
- No. It’s just more short-sighted and short-term thinking. It’s more of the same: socializing the risks and costs, privatizing the gains. Risky lending has now returned under the law. And all those riskier mortgages will be concentrated throughout even fewer big banks this time (because contrary to popular belief, some did die and were not bailed out during the 07-09 Great Recession, while others merged, and my underlying assumption here is that two of the big five banks being critics and skeptics of the Trump “boom” economy see what I’m seeing and will therefore be appropriately cautious and less over-leveraged, at least in theory).
- At some point between now and 3 years from now, because they can, the powers that be will repeal Obama-era student loan reforms, which will have a far greater effect over time than the final trigger to the crash. Student loan debt, unlike mortgage loans, is not dischargeable. The student loan bail out that this country and at least two-generational cohorts need will be a decade too late. So the mortgages will be what people decide to unload, because what choice is there? It’s a no-brainer for them. They wouldn’t dare repeal these reforms you say? Yeah…. we keep saying that about a lot of things. The MO of this administration has more or less been to repeal anything Obama did. These relatively obscure reforms in comparison they’ll eventually get around to. After all, just another chance to “stick it to the libs” (liberal arts degrees in this case).
- Just like in 2006, when the housing market was a bubble that few would say would burst into pain, others said would be fine, while the vast majority argued for a soft landing somewhere in the middle, economic optimism was too high (just like today), and jobs (but not wages) plentiful, unemployment superficially low. What happened then? In 2006 the Federal Reserve raised interest rates. In 2018, the Fed raised rates to 1.75 up from 1.5 and signal two more raises will be coming. This will effect flex-rate mortgages, not nearly as common as fixed-rate mortgages but common enough to trigger the underlying problem in-tandem with the fundamental unsoundness of the U.S. economy and fiscal health of the country. With all of the repeat conditions in place and confidence surging too high, we’ll be in for a repeat. History is one damn thing after another, and it often rhymes, like poetry and the Star Wars saga.
- If the GOP still has majorities and is led by people philosophically disinclined to do anything. President Trump, not a candidate, but THE president, and also an economic illiterate, surrounded by self-interest, kleptocrats, and professionally wrong economic advisors, will dispense of the ridiculous myth that those who have had business success know things about the overall economy and economics. If in office, like President Bush before him, President Trump will actually be the most likely to do something just because we’ll be reeling and perhaps finally, his perpetual lying will run up against the reality of physics and economics for even his most diehard supporters. He’ll need Democratic votes to do anything, and time will tell whether the fall of ’08 W. Bush and Democratic-led bipartisan bailout effort will commence. If the GOP holds both houses of Congress, which is very well possible if ’18 is a disappointing midterm for Dems, and Trump is re-elected, may be their response will be pure-Hooverville. Who did respond, but too little, too late. Combined with the longer term automation problems that neither party has a plan for, wages not rising fast enough, if at all, and a still ineffective opposition party (but a slowly improving and learning grassroots movement outside the party desperate for reform) — we’ll enter a deep and painful Great Recession. The Great(er) Recession of 2021–?? With all of these predictions, it goes without saying that I hope I’ll be wrong. Why am I so certain?
Human nature mostly. Think of what housing entails, think of the chain of established relationships from buyer to broker to seller. From lender to developer to manufacturing to construction. Everyone is an optimist in that chain, wanting to make something happen for both themselves and their clients
Real estate agents. Lenders. Salespeople. The dream of home ownership. The collision of self-interest. The pursuit of happiness if you will. And if it is not self -interest, it is forced consumerism.
Think of the history of the post-industrial age. Titanic. WWI. Great Depression. WWII. Every time there was a chorus of wild-eyed optimists excited for the future, and every time they were professionally and horrifically wrong.
Think to our own time, after the Cold War had ended and the Soviet Union was breaking up, one of the finest and most famous political scientists and political economists of our time had announced our great triumph. Liberal democracy has triumphed as the final stage of human organization. We’ve reached the “end of history.”
Think of 2016. Clinton will definitely win.
All of them very serious people, all of them very disastrously and professionally wrong.
A good economy they will say, don’t be so negative, etc.
But this isn’t a good economy. It’s a fictional one. Sluggish growth for nearly two decades now. Instead of the Great Depression, think the original Great Depression–the Long Depression.
I point to a quote from Gandhi about seven things that will destroy us to back up my assertion that this is a fictional economy.
The top one — Wealth without work.
GOP politicians love to wax philosophic about work but they cannot see fit to agree to a tax code that treats wealth-based and passive income the same as labor income. If you work you are taxed more than if you don’t work in this country. The GOP doesn’t value work, they value wealth. Citizens United has created few incentives for elected officials to put the interests of workers ahead of the interests of organized wealth and money. Only a government in D.C. that challenges concentrated wealth and money can stem this tide at this moment in our history.
The truth is that we’ve been doing wealth without work for some time, and it’s that truth that has continued to erode at our democracy, and as we’re seeing this week — our rights.
And this is why housing and real estate is the key, and a middle-out economy essential. It’s entirely possible, as some believe, that all U.S. growth the past few decades can be accounted for through real estate, which itself has contributed to and driven increasing economic inequality, as the rapid rise in real estate values have created obscene levels of wealth in some major cities, sending homelessness levels to a crisis point, as well as creating an affordable housing crisis along with it, especially in the tech-hubs, while creating “sacrifice zones” elsewhere. Real estate is a great investment throughout human history, the most reliable one. But there is an ocean of difference between that 1985 home purchased in NYC, LA, Seattle, or San Francisco and Detroit, St. Louis, etc.
Rural America has not faired much better than the sacrifice zones, with some small towns disappearing off the map entirely. Family farms being sacrificed to corporate farming. Wall Street winning out over the concerns of Main Street time and again.
This unsoundness to the American economy isn’t a weather pattern. It’s been in our choices, in our policies and budgets, in our media and culture, and was warned about on the horizon by President Jimmy Carter, a crisis of confidence that lingers with us today and has been exacerbated, a speech that many still deride as the “malaise” speech. But President Carter was right. I’m not here to tell you what you want to hear. You have President Reagan or President Clinton for that, and while they were smiling and making you feel better, their policies were setting the stage for the current era in which we live.
President Trump may similarly make some people feel better that America is back and can be great again. But once again, his policies have doubled-down on exactly what got us here, have set the stage for making things worse in the long run, and his lack of adherence to democratic norms and traditions, combined with a consistent need to drum up increased fear and hatred within his base, make the next economic downturn a potential catalyst for even worse and unthinkable events. But we can do better, and we can go another way. If we can only summon the courage to stop lying to ourselves.
Ultimately, like the election of Trump itself — the fault is not in our stars, but in ourselves.