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Next President Sets Sail On A Sea Of Troubles
 
Irwin M Stelzer
October 17, 2015

     The next president of the United States will likely wish he or she weren't.

     Barack Obama will have willed his successor a Middle East dominated by a coalition of Russia, Syria, Iraq and a nuclear-arming Iran. China will have ramped up its military to make our aircraft carriers vulnerable to its missiles. Vladimir Putin will have proved NATO incapable of coping with Russia's expansion. And the price of oil will be rising as Russia and Saudi Arabia realize that there is nothing odd about continuing to kill each other's allies, while at the same time colluding to cut oil production to drive prices back to $100 per barrel. Great Britain will have completed its ongoing realignment of its trade and policies with those of China, among other things supporting the replacement of the dollar with the renminbi as the world's reserve currency. America will stand alone. Well, not quite alone: it will be a member of something the previous US president called "the international community."

     On the domestic front, the next president will face a world economy bereft of any growth drivers. A sampling of the headlines that will be awaiting the new president's daily arrival in the Oval Office;
  • "Policy Makers Skeptical on Ability to Prevent Another Financial Crisis". The New York Times.
  • "Gloomy global outlook stalks finance ministers". Financial Times.
  • "Global Economy Yields Few Bright Spots". The Wall Street Journal.
     Then there is the domestic news. "As U.S. Infrastructure Creaks, Congress Dithers." And "Consumers shutting down as US economy deflates," with many telling pollsters that they are planning to rein in their inner-spender. Just as Obama blamed George W. Bush for the economy's poor performance during his eight years in office, the next president will complain that Obama passed to him a poisoned chalice, which includes continued brawls over the debt ceiling, the inability of the top brass of the Federal Reserve Board to agree on monetary policy, and an economy that continues to travel in the slow lane, with predictions of growth well below 2% for the rest of his term.

     Which some economists contend is an inevitable consequence of excessive debt, and that until that burden is eased rapid economic growth is beyond our reach. One example: many wealthy Americans have decided to pay down debt rather than spending their rising incomes - ill-gotten gains according to Sanders and Clinton - to stimulate the economy. The University of Michigan's Survey of Consumers reveals that 15% of high-income households, the one-third of all households with annual incomes of $90,000 or more, reduced their outstanding debt last month. After all, the volatile stock market is not exactly an inviting place in which to put money, witness lack of investor interest in some planned initial public offerings (36% fewer I.P.O.s priced this year than at the same time last year) , and the cancellation or delay of others (Albertson, Neiman Marcus).

     Which leaves it to the business community to step up its spending if the economy is to grow at more robust rate. But businesses are reluctant to do that. They are facing some of the consequences of the policies the new incumbent favored when merely a candidate for the office he or she now occupies:
  • higher taxes as a result of a coordinated international crackdown on tax avoidance programs that enable major corporations (Apple, Google, Starbucks et al.) to find congenial havens for their profits;
  • rising labor costs due to increased legal minimum wages (Walmart profits due to fall by 12%) and mandatory generous paid maternity leave; pressure to create less stressful work schedules (Amazon, fast food franchisees) and a better work:life balance (investment banks); and skills shortages (home builders, trucking companies); and
  • demand too weak to justify building new plants and buying equipment.
     Instead of such investments, companies are using their cash piles to finance a new wave of corporate mergers in the media, beer, equipment, health care, software and other sectors. These aggregations, if they succeed - which is far from certain if history is any guide - are more likely in the near term to result in layoffs than in new construction and jobs.

     Meanwhile, economists are of little help. Monetary policy is neutered - the economy too weak for a rate increase and, and use of negative interest rates to force consumers into the malls and businesses to the new-plant drawing boards too risky. With producer prices recording their greatest decline in eight months in September, deflation threatens to turn the US into no-growth Japan.
Fiscal policy is also neutered - even John Maynard Keynes might baulk at an increase in deficit spending by  a country already so deeply in hock that the rating agencies might down-grade its debt, pushing up the interest rates investors will demand of an already-profligate borrower.

     Quite respectable economists on the left propose to reduce income inequality and stimulate growth by transferring still more income from the low-spending rich to the higher-spending middle class and the poor to boost sagging or stagnant retail sales. And to increase government borrowing and spending on infrastructure, current debt levels notwithstanding. As they see it, we have entered an era of secular stagnation, with private-sector demand for goods and services insufficient to induce the higher rate of investment and job creation needed for rapid growth. Just the policy to drive private sector investors deeper into their shells, respond those who favor a cleansing dose of austerity and higher interest rates to avoid the alternative - a wild, Jimmy Carter magnitude inflationary spiral, or another financial collapse as savers and investors take on excessive risk in an effort to earn something, anything, on their savings and investments. President whoever will have to decide which advice to follow.   

     So President Trump will be wishing he could escape the grotty White House for the gilt and glitter of Trump Tower, where he could plan more of the bankruptcies that he claims demonstrate the exquisite timing that contributed to his business success, even more than did his unmentioned inherited fortune. President Fiorina could be rounding out her business career by sending other companies down the disastrous path she blazed for Lucent and Hewlett Packard. President Clinton could be swanning around the world with her Wall Street friends, courtesy of donors to the Clinton Foundation, and carbon emissions from her private jet be damned. President Carson might have returned to doing real good for real people by curing what ails them. President Bush III could be in the private sector, where his family's backing and his name are assets rather than liabilities. President Bernie Sanders could have sufficient free time to meet with the new hard-left leader of Britain's Labour Party, Jeremy Corbyn, for a lusty singing of The Internationale. And young President Rubio could be coaching his children's sports teams.

     All pursuits more gratifying than coping with the Obama foreign policy legacy, a global recession and slow growth at home. There are times when what appear to be winners are in fact losers. 


 


 

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