Markets and politicians are both crying that the sky is falling, but the facts say otherwise. Buy gas recently?
FROM POLITICO | JANUARY 17, 2016
The “nattering nabobs of negativism” (a phrase we have to thank Spiro Agnew for, via William Safire) are out in full force again in the financial and pundit world. While there was only occasional mention of the economy during the Republican debate last week, both the GOP contenders and market mavens seem to agree that the world is going to hell. They have different reasons: The Republicans think the world has become dangerously unstable and that Obama is a cause. Investors, who have pushed global financial markets sharply lower (the S&P 500 is now down almost 10 percent since January 1) to the worst start to a year ever, see the root cause as heedless central banks, a U.S. economy grinding to a halt, and a collapsing debt-laden China.
Yes, it’s Chicken Little time in America, folks. Look up, however, and you’ll see that the sky is mostly blue—and intact. Indeed some parts of the economy are looking even sunnier than they were just a few months ago. Buy gas recently? Wall Street may not like the plunge in oil prices, but it’s sure a nice break for us consumers. Average Americans are said to be in the doldrums—or just plain angry, a la Donald Trump—in part because their wages are stagnant. But the sharp decline in energy and commodity prices will soon enough act as a de facto massive tax break for tens of millions of Americans (and hundreds of millions of other people throughout the world).
As is the wont of any president in a State of the Union speech (particularly his final one), Obama touted economic recovery under his watch and pointedly declared that “anyone claiming that America's economy is in decline is peddling fiction.” That ignited a flurry of reactions, and ripostes, most notably from Donald Trump, who accused Obama of “living in a fantasy land” and continued his drumbeat claim that “frankly the country is a mess.” Chris Christie also got his digs in, “It's the world as he wishes it was, not the real world his failed leadership has left to all Americans."
The doomsayers are not limited to Republican presidential hopefuls. At times, Bernie Sanders taps into a similar vein of deep pessimism about the direction of the country. The difference is that he sees the intimate embrace of money and politics as the greatest unaddressed danger of our time, one that in his view Obama has done little to mitigate and much to enhance with a healthcare law that maintains the profit motive and banking reform that enshrines Too Big to Fail.
Global financial markets also continue to drop, as they have been doing since the end of 2015. While even the most partisan voices haven’t blamed Obama for, say, weakness in China that has helped trigger global economic anxiety, loud voices in the financial world are certainly sounding a similar note to the Republicans thundering that we are at a breaking point.
At least two prominent strategists of large investment banks, Societe Generale and the Royal Bank of Scotland, are calling for 50-to-75 percent declines in U.S. and global stocks, arguing that years of easy money policies from central banks have vastly distorted and inflated asset prices and yet done little to prop up organic economic growth. The result, they say, is a world of too much debt, wildly overpriced real-estate and financial assets, global deflation that is hiding a stealth global recession, and system that has no more ability to manage and withstand the shocks that are coming. Those messages have loud echoes, and are voiced by others as prominent as George Soros and by obscure but trigger-happy Wall Street traders whose names may not be widely known but whose actions move markets.
Those messages are deeply at odds with both the facts and the tone of Obama’s last State of the Union address. The facts are that the United States has experience 70 consecutive months of job growth; the headline unemployment rate is at 5 percent, which is half what it was in the worst of 2009 and close to what it was in the boom times of the 1990s.
Economic growth as measured by GDP has been chugging along steadily at between 2 percent and 2.5 percent, which is lower than it was for much of the second half of the 20th century, but rather high compared to any other developed economy in the world. And while wages are stagnant, and most incomes other than those of the very affluent are as well, costs of many of life’s essentials from energy and gasoline to communications to clothing and food, are lower – though costs of higher education are certainly higher and the price of health care is in such flux as to create both anxiety and uncertainty for many.
While plunging oil prices hurt countries ranging from Russia to Mexico, as well as some states that have benefited from the shale boom, for the most part Americans will see nothing but benefit from this radical shift in global commodity prices. From gasoline heading towards $1.50 a gallon to the cost of finished goods declining as raw material prices crater, the price of many everyday essentials is likely do down this year. For the moment, the financial world is painfully adjusting to this deflation, and financial markets are in turmoil as a result. As markets make that adjustment in the coming months, however, the result is likely to be a boost to people’s purchasing power.
Number of jobs created; GDP growth; prices. These are all statistical facts, and they trend positive. To be fair to numerous voices that challenge them, they are open to some interpretation and challenges. We count the number of jobs created but federal employment figures do not distinguish between subsistence-level jobs with poverty level wages and careers in computer programming and engineering. We measure GDP as an absolute beacon of economic health, but in a world where robots and technology can produce goods that make for profitable companies, GDP can grow and companies can prosper even as many millions of workers see no tangible benefit. The statistics that define our economy are simple numbers that reduce a complex system to a few basic figures, and in a country with more than 320 million people, it is easy enough to find large swaths of the population whose experiences diverge from what those numbers tell us about the economy in general.
Anecdotes and feelings, however, are a poor substitute. Yes, many millions of Americans feel that the country is heading in the wrong direction, whether because of economic performance that falls short of expectations and promises or because of the sense that the dangers of the world are coming ever closer to home. And yes, many millions of Americans cannot generate sufficient income to meet basic needs. That does not invalidate the general statement that there has been real progress and that by most metrics other than wages, the United States has been on a gradual upswing.
“Never let the facts get in the way of a good story,” said Mark Twain first and countless others since. For years, large swaths of the political class along with Wall Street have challenged the post 2008-09 recovery as an illusion built on central bank chicanery and Washington sleight of hand. For them, acknowledging problems is not sufficient; instead, it is all Armageddon, all the time. Yet they ignore that companies making less money this year is not the same as companies making no money. Energy companies are in a deep spiral down, but even with a reduced estimate of $120 a share for the companies of the S&P 500, that is still a mountain of profit. Stock markets have been selling off hard and fast, but not in a way that is as yet outside normal, albeit unsettling. ranges of up and down.
Yes, there is a storied history of market Cassandras (hence the appeal of “The Big Short”), and even more storied history of political figures from William Jennings Bryan to Barry Goldwater railing against the imminent decline and fall of our society. Today’s crop, however, rather than tapping into a noble tradition calling on us to take a different path, sound more like Chicken Little, full of hysteria and short on substance.
There is nothing perfect about the American economic system. It is slogging through a transition between a 20thh century manufacturing economy and whatever post-industrial system is evolving. That is not the product of the Obama administration, and it won’t magically resolve itself after the next election. But refusing to grant the reality of some basic economic strength is indeed an act of either political callousness or genuine obtuseness. Fiction sells well, especially in an election year; it’s entertaining and often enlightening. But fiction as an electoral strategy does us no good, nor does calling for a collapse in the financial system help manage its challenges. Those tactics are the rhetorical equivalent of shouting fire in that crowded theater, designed to generate panic and fuel hysteria. They are wrong, and they should be called out.