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Washington Post Op-Ed, August 18, 2018
Another epic economic collapse is coming
By George F. Will
Eric Sevareid (1912-1992), the author and broadcaster, said he was a
pessimist about tomorrow but an optimist about the day after tomorrow.
Regarding America’s economy, prudent people should reverse that.
This Wednesday, according to the Financial Times’s Robin Wigglesworth
and Nicole Bullock, “the U.S. stock market will officially have enjoyed
its longest-ever bull run” — one that rises 20 percent from its low,
until it drops 20 percent from its peak. And Sept. 15 will be the 10th
anniversary of the collapse of Lehman Brothers, the fourth-largest U.S.
investment bank. History’s largest bankruptcy filing presaged the
October 2008 evaporation of almost $10 trillion in global market
capitalization.
The durable market rise that began March 6, 2009, is as intoxicating as
the Lehman anniversary should be sobering: Nothing lasts. Those who see
no Lehman-like episode on the horizon did not see the last one.
Economists debate, inconclusively, this question: Do economic expansions
die of old age (the current one began in June 2009), or are they slain
by big events or bad policies? What is known is that all expansions end.
God, a wit has warned, is going to come down and pull civilization over
for speeding. When He, or something, decides that today’s expansion,
currently in its 111th month (approaching twice the 58-month average
length of post-1945 expansions), has gone on long enough, the
contraction probably will begin with the annual budget deficit exceeding
$1 trillion.
The president’s Office of Management and Budget — not that there really
is a meaningful budget getting actual management — projects that the
deficit for fiscal 2019, which begins in six weeks, will be
$1.085 trillion. This is while the economy is, according to the economic
historian in the Oval Office, “as good as it’s ever been, ever.”
Leavening administration euphoria with facts, Yale University’s Robert
J. Shiller, writing in the New York Times, notes that since quarterly
gross domestic product enumeration began in 1947, there have been
101 quarters with growth at least equal to the 4.1 percent of this
year’s second quarter. The fastest — 13.4 percent — was 1950’s fourth
quarter, perhaps produced largely by bad news: The Cold War was on, the
Korean War had begun in June, and fear of the atomic bomb was rising
(New York City installed its first air-raid siren in October), as was
(consequently) a home-building boom outside cities and “scare buying” of
products that might become scarce during World War III. Today, Shiller
says, “it seems likely that people in many countries may be accelerating
their purchases — of soybeans, steel and many other commodities —
fearing future government intervention in the form of a trade war.” And
fearing the probable: higher interest rates.
Another hardy perennial among economic debates concerns the point at
which the ratio of debt to GDP suppresses growth. The (sort of) good
news — in that it will satisfy intellectual curiosity — is that we are
going to find out where that point is: Within a decade, the national
debt probably will be 100 percent of GDP and rising. As Irwin M. Stelzer
of the Hudson Institute says, “If unlimited borrowing, financed by
printing money, were a path to prosperity, then Venezuela and Zimbabwe
would be top of the growth tables.”
Jerome H. Powell, chairman of the Federal Reserve, says fiscal policy is
on an “unsustainable path,” but such warnings are audible wallpaper —
there but not noticed. The word “unsustainable” in fiscal rhetoric is
akin to “unacceptable” in diplomatic parlance, where it usually refers
to a situation soon to be accepted.
A recent International Monetary Fund analysis noted that among advanced
economies, only the United States expects an increase in the debt-to-GDP
ratio over the next five years. America’s complacency caucus will
respond: But among those economies, ours is performing especially well.
What, however, if this is significantly an effect of exploding debt?
Publicly held U.S. government debt has tripled in a decade.
Despite today’s shrill discord between the parties, the political class
is more united by class interest than it is divided by ideology. From
left to right, this class has a permanent incentive to run enormous
deficits — to charge, through taxation, current voters significantly
less than the cost of the government goods and services they consume,
and saddle future voters with the cost of servicing the resulting debt
after the current crop of politicians has left the scene.
This crop derives its political philosophy from the musical “Annie”:
Tomorrow is always a day away. For normal people, however, the day after
tomorrow always arrives.
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