ON THE FRONT LINES: Potential economic downturn would severely harm Americans
On the Front Lines
This past week has been a tumultuous one for anyone investing on Wall Street, as the Dow Jones lost 3,500 points.
The sell off was — and is — in response to fears that the novel coronavirus and international attempts to keep the disease at bay may harm the economy, especially in China, where much of the virus and the world’s manufacturing is located.
Because China has taken measures to prevent the disease from spreading any further, including bringing its workforce to a halt, the markets fear that a supply shock will wreak havoc on the economy. These fears may be justified, as Chinese manufacturing has taken a severe hit, according to the BBC.
If the prospect of a pandemic is the sole cause of this week’s market crash, the economy is still in a relatively good position to recover. But I suspect that the dip was only provoked by coronavirus and that investors used it as the excuse they needed to sell. Other economic indicators pointed toward recession as early as last year, such as the inversion of the yield curve.
Basically, the economy is destined for recession eventually. That is an inescapable truth of capitalism, and any delusions of infinite growth are always quelled in time. The economy is cyclical, and since former President Barack Obama’s stimulus package (along with numerous other, more important factors) it has grown, and Wall Street has been in a growing bull market.
The issue with the Obama-era recovery from the Great Recession is the fact that it only contributed to income inequality, and the growth was seen mostly at the top. A factor in this is also Congress' decision to bail out the big banks after the financial crisis. The wealthy got off scot-free, which propelled their growth and handicapped the 99 percent.
“ … While the 1 (percent) power ahead and continue to reclaim income lost during the recession, a full recovery for the bottom 99 (percent) remains elusive,” according to The Guardian.
This spells economic trouble going forward. Growth and decay periods are expected for the economy, but those growth periods are supposed to be the time when the middle class makes gains in material wealth, while downturns are generally a time for the masses to use their accumulated money to make ends meet.
The public does not have the gained wealth to provide a cushion for when the economy inevitably hits a rough patch and are, as a result, less equipped to deal with any future struggles. This will only further harm the economy going forward, as consumer spending is a large portion of how the economy generally recovers.
Compounding this issue even more is the fact that President Donald J. Trump’s administration, as well as the Federal Reserve, have already exhausted the typical Keynesian methods of tackling a bad economy, which consist of lowering taxes and interest rates to propel growth.
The problem? Trump cut taxes back in 2017, while the economy was still growing.
“Congressional Republicans delivered on their first major legislative accomplishment of the Trump era on Wednesday, when the House voted 224-201 to pass a $1.5 trillion tax package. The bill cuts individual rates for eight years and slashes the top corporate tax rate to 21 percent permanently,” according to National Public Radio (NPR) at the time.
The Federal Reserve also — in my opinion, far too preemptively — slashed interest rates back in 2019, in response to the trade war with China.
“The Federal Reserve cut interest rates on Wednesday for the third time this year, reversing nearly all of 2018’s rate increases as uncertainty from President Trump’s trade war and slowing global growth continue to pose risks to the United States economy,” according to The New York Times on Oct. 30, 2019.
Interest rates and taxes are now both at low levels, giving the government and Federal Reserve little ammunition to fight a downturn other than yet another expensive stimulus policy, which would be problematic considering that Trump and Congress have also raised government spending, meaning that any stimulus — which surely would not be coupled with higher taxes during a downturn — would exasperate our skyrocketing debt even further.
Oh, and the Congressional Budget Office predicts economic growth to slow down independent of coronavirus or Trump following 2020.
All this goes to show that the economy is about to take a turn for the worse and that we are ill-equipped to combat such a scenario, so it is best to save every dollar you can now.
Jake McGowan is the Opinions editor for The Daily Targum.
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