Noted growth-economics advocate Stephen Moore wrote yesterday in the Wall Street Journal that the American economy is not on a “sugar high” and not in danger of crashing any time soon.
He’s wrong.
Moore is wrong. He has been advising a president who, it was reported last week, doesn’t care at all about a burgeoning debt crisis because he thinks the bad results will not happen on his watch. (President Trump is wrong, too: The debt crisis could blow up a lot sooner than he thinks.) Moore is wrong because when deficits and debt already are at historically high levels while interest rates already are well below post-World War II norms, there’s no capacity to use fiscal or monetary policy to re-stimulate an economy that is contracting.
Moore is also wrong because the international economy is weak, and that will harm the American economy as demand for our exports drops. He’s wrong because the housing market in the United States, traditionally a leading indicator for broader economic activity, has remained weak for many months now.
Moore does offer a caveat in his final paragraph, to the effect that “the specter of a global trade war” is a “threat” to what otherwise would be a continuing economic boom. On that, he is absolutely correct. But good luck removing that specter as long as “Tariff Man” is in office.
Another reason we’re due for a slowdown is that the so-called “business cycle” does exist (even if lazy analysts are wrong if they treat it as an immutable law of nature rather than a mere tendency of crowds occasionally to run out of energy and want to take a collective breather). When people and businesses have been investing and expanding and hiring workers to degrees well beyond the norm, there comes a time when the perceived need for those investments and expansions diminishes. The U.S. economy may be — by all logic, is — about to reach that point.
As I’ve argued all year would happen, stock-market losses and volatility began in October and continue today, specifically because investors, in their collective wisdom over a period of time, understand and take into account all these factors. Just yesterday, Morgan Stanley’s chief equity strategist, Michael Wilson, told clients to expect an “earnings recession” and probably a “rolling bear market” in 2019 and perhaps beyond.
Horrendous political gridlock in Washington will make it difficult to respond to these trends. All of which means that unless, somehow, lawmakers find a way out of the gridlock, the likelihood increases that no fix will be in the offing.
The problem with respected people like Stephen Moore saying there’s nothing to worry about is that it instills a false sense of security — thus making it even less likely that lawmakers will feel emboldened to act. When the economy is in danger of drowning in debt, it’s a very bad thing if the lifeguards are asleep.
