What could bring America's long economic expansion to an end

[Anonymous]

Around the world investors, businesses and central bankers are grappling with a startling fact: at the end of July America's economy will have been growing for 121 months, the longest run since records began in 1854, according to the nber, a research body. History suggests there will be a recession soon. And plenty of people are gloomy. Bond markets have been sounding the alarm, as long-term interest rates sink below short-term ones, often a harbinger of a downturn. Manufacturing firms are wary; indices of business confidence are tumbling. Yet equity investors are still buoyant. The stockmarket is going gangbusters, rising by 19% so far this year. And in June America's economy created a whopping 224,000 new jobs, more than twice as many as needed to keep up with the growth of the workforce. The result is a puzzle that matters a great deal. America's economy accounts for a quarter of global output, so if it stumbles the world will, too. But if it proves able to extend the cycle a lot longer, it may be time to rewrite the rules for how all rich economies behave.



The conflicting signals reflect an unusually sluggish and stretched expansion. Some of that is to be expected after the worst financial crisis in 80 years, but as our briefing explains, it is also owing to deeper changes in America's $21trn economy. Growth is slow but more stable as activity has shifted to services and intangible assets. Thanks to new regulations and the recent memory of the bust, there are few signs of wild mortgage lending, over-investment or reckless financial firms. Inflation is remarkably subdued. These forces mean that a placid expansion can continue well beyond historical norms, but also suggest that the way it will eventually end will be different. Recessions used to be triggered by housing bubbles, price surges or industrial busts. Now you should worry about globally interconnected firms, a financial system addicted to cheap money and a political system that is toying with extreme policies because living standards are not rising fast enough.



Average gdp growth during this expansion has been a mere 2.3%, much lower than the 3.6% that was seen in America's three previous expansions. That reflects some deep malaises. The workforce is ageing. Big firms hoard profits and invest less. Productivity growth has been slow. Robert Gordon, an economist, worries that America's genius for innovation is flagging. Emojis and bitcoins are no substitute for breakthroughs such as jet engines or the internet.



That is the bad news. The good news is that the economy may be less volatile. A third of America's 20th-century recessions were caused by industrial slumps or oil-price shocks, according to Goldman Sachs. Today manufacturing is just 11% of gdp and each dollar of output requires a quarter less energy than in 1999. Services have become even more vital, at 70% of output. Instead of fickle factories and Florida condos, investment has shifted to intellectual property, which now accounts for more than a quarter of the total. After the searing experience of 2008, the value of the housing stock is 143% of gdp, well below the peak of 188%. Banks are rammed full of capital.



Most remarkable of all is very low inflation, which has averaged 1.6% over the course of the expansion. In many past downturns the jobs market overheated, causing inflation and leading the Federal Reserve to hit the brakes. Today the dynamics are different. The unemployment rate has fallen to 3.7%, close to the lowest in half a century, but wage growth is only a tepid 3%. Workers have less bargaining power in a globalised economy. The Fed's credibility helps, too—most people believe that it can keep long-run inflation at about 2%. Given that racing prices are less of a worry and that it lacks the ammunition to deal with a serious downturn, the Fed is being more active at signalling that it will ease policy when growth dips. This week the Fed signalled it would soon nudge rates down from today's 2.25-2.5%, to keep growth going.



All this supports the idea that the familiar triggers for recession are still absent and that the moderately good times can roll on for years yet. The trouble with this logic is that, just as the economy has changed, so have the risks. Inevitably it is hard to identify exactly what might go wrong, but three new kinds of problems loom large.



First, America's glossy corporate champions have unfamiliar vulnerabilities. Although fewer make physical goods, most rely on global production chains that are being shaken by the trade war (see article). This is depressing investment and could yet produce a shock—imagine if Apple was cut off from its factories in China. Tech firms, meanwhile, now account for a third of all investment by listed firms, including intellectual property. Other businesses outsource their need for it services to a few giants. One of them, Alphabet, spent $45bn in the past year, five times more than Ford. But 85% of its sales come from advertising, which has been cyclical in the past. It and other tech firms also face a regulatory storm.



The second risk is financial. Although house prices and the banks have been tamed, total private debts remain high by historical standards, at 250% of gdp. An edifice of asset prices and borrowing rests on the assumption of permanently low and stable interest rates, making it more fragile than it looks. If rates rise there will be distress among some firms, and trouble in debt markets—there was a sell-off in late 2018. If, by contrast, the Fed has to cut rates to near zero for a prolonged period to sustain growth, it could weaken the banks, as Europe has found.



A recession made in Washington?

The last danger is politics. As the economy has trodden a narrow path, the boundaries of economic policy have been blown wide apart, partly out of frustration at a decade of sluggish wages. President Donald Trump has tried to gin up growth, by cutting taxes and attacking the Fed. Most Democrats are keen to let rip on government spending. More extreme policies hover in the wings. On the left, modern monetary theory (a kind of money printing) and massive state intervention are popular. One of Mr Trump's new nominees to the Fed board supports a gold standard. The greatest threat to America's long and placid expansion is that a new era of wild policy may be just beginning.

https://www.economist.com/leaders/2019/07/11/americas-expansion-is-now-the-longest-on-record">https://www.economist.com/leaders/2019/ ... -on-record">https://www.economist.com/leaders/2019/07/11/americas-expansion-is-now-the-longest-on-record



I do not agree with everything in this article from The Economist magazine, but I rarely do agree with their commentaries. The US economy has changed from past expansion/recession cycles. The old rules no longer apply.

[Anonymous]

The US economy is on a lot more stable ground than Canada's. We have the most indebted citizens in the developed world. And while investment has poured into Trump's deregulated, freer economy, investment money is fleeing Canada, particularly the resource sector, thanks to Justine. The only thing keeping Canada afloat, are consumer debt and a buoyant American economy.

[Anonymous]

The US economy is on a lot more stable ground than Canada's. We have the most indebted citizens in the developed world. And while investment has poured into Trump's deregulated, freer economy, investment money is fleeing Canada, particularly the resource sector, thanks to Justine. The only thing keeping Canada afloat, are consumer debt and a buoyant American economy.

Alberta will be in permanent recession as long as Trudeau remains in office..



This is why there is growing support in this province for a new arrangement with Ottawa.

[@realAzhyaAryola]

I do not know the answer but it's just a matter of time before it goes down. What goes up must eventually come down, as trends have shown.

[Bricktop]

Western corporations that abandoned their homelands to utilise cheap labour provided by a hostile nation will ultimately reap their rewards, when that labour is inevitably withdrawn to enable China to compete with its own products.



These idiots chased bigger profits, ignoring the fact that those profits were supplied at the behest of a nation that is xenophobic, self serving and aggressive.



The smart ones will be preparing to move their manufacturing base back to their homeland to cushion against the final collapse of globalism.

[Anonymous]

Western corporations that abandoned their homelands to utilise cheap labour provided by a hostile nation will ultimately reap their rewards, when that labour is inevitably withdrawn to enable China to compete with its own products.



These idiots chased bigger profits, ignoring the fact that those profits were supplied at the behest of a nation that is xenophobic, self serving and aggressive.



The smart ones will be preparing to move their manufacturing base back to their homeland to cushion against the final collapse of globalism.

But, if you look at Seoul's article, the American economy has changed..



Manufacturing is only eleven per cent now of their economy..



Investment is going into other sectors.

[Anonymous]

I do not know the answer but it's just a matter of time before it goes down. What goes up must eventually come down, as trends have shown.

it will go down here before the US and stay down for a long time. Canada's growth is on the backs of the most indebted consumers in the developed world. When they max out their credit cards the entire economy collapses. We are over reliant on the housing market in this country. A lot of wealth will be wiped out in this country when the inevitable hard landing comes.

[Anonymous]

Big tech is overvalued. That's a global problem.

[Anonymous]

Big tech is overvalued. That's a global problem.

Zuckerberg is worth seventy frickin billion. His company is a social media outfit. We can live without it.

[Gaon]

America's problems are not so much economic. Insane social policy will make America a third world nation. One hundred thousand illegal aliens entering the country every month is not sustainable much longer. It is expensive and strains resources. And the Democrats only want to add more illegal immigration.

[Anonymous]

America's problems are not so much economic. Insane social policy will make America a third world nation. One hundred thousand illegal aliens entering the country every month is not sustainable much longer. It is expensive and strains resources. And the Democrats only want to add more illegal immigration.

Economic decline is a consequence of stupid domestic spending. Old Mitt Romney said in 2012 that 47 per cent of Americans are not contributing and he was eaten alive by the media. What happens when that number reaches sixty per cent takers and forty per cent makers. I know Israel has a similar problem with the ultra orthodox and Arabs.

[Anonymous]

How much longer can the current woke dysfunction last before the wheels come off the bus.



Does America Still Work?



or nearly two years, Americans have engaged in a great woke experiment of cannibalizing themselves. American civilization has invested massive labor, capital, and time in an effort to constantly flagellate itself for not being perfect.



Yet America's resilience and its resources are not infinite. We are now beginning to see the consequences of what happens when premodern tribalism absorbs Americans.



There are repercussions when ideology governs policy or when we take for granted the basics of life to pursue its trappings.



Who cares whether the blow-dried media is woke if it cannot report the truth and keep politicians honest? Once journalists became progressive poodles rather than the watchdogs of government, the Biden administration had no fear of audit. It took for granted that its disasters, from the southern border to the chaos in Afghanistan, would be excused by toady reporters.



Government-engineered "equity" has replaced the goal of equal opportunity. But such utopianism births popular anger when personal initiative, excellence, and performance do not count as much as virtue-signaling groupthink.



The United States just suffered a terrible and shameful defeat in Afghanistan. The catastrophe reminds us that the Biden administration had its politicized military and bureaucracy mostly fixate on diversity, equity, and inclusion, and to root out supposed internal enemies.



So, our top brass and functionaries talked of redirecting the military to every possible woke agenda—except ensuring military superiority and the safety of the United States.



The result is the horrific mess of a premodern Taliban army routing the most sophisticated military in the history of civilization. We shudder when America begs premodern tribes not to murder our citizens whom we abandoned in full retreat.



Airline CEOs virtue-signal their wokeness by damning voter ID laws—though such identification is required to board their airplanes. The new normal for U.S. airlines is woke delays, woke cancellations, and woke anarchy in the skies.



Some universities now subject their admissions, their hiring, and their research to race and gender directives. There is less concern about the collective student debt of $1.7 trillion. College students may graduate woke, but they do so with far less impressive reading and writing skills than their less politically correct predecessors a half-century ago.



Are college administrators really so virtuous when they boast of improving diversity, equity, and inclusion? Why, then, do they ignore indebted and poorly educated graduates—veritable serfs who cannot afford homes, put off raising families, and prolong their adolescence rather than becoming autonomous citizens?



We know from centuries past which policies ensure public safety and which guarantee crime. All laws must be enforced equally. Yet now, suicidal legal and critical race theories sometimes govern which laws are enforced and which are ignored.



If a state attorney prosecutes crimes—or chooses not to prosecute them—on the basis of ideology and race rather than on questions of impartial law, then who would obey, much less honor any of them?



The police must not just be monitored, but respected and supported. Today they are defamed and defunded. If those who commit crimes do not expect to be arrested and punished, then crime pays. And so we get more of it.



Cries to empty the jails and prisons and pull back on police might sound neat on Twitter. But lots of innocent Americans will suffer the deadly consequences of someone else's virtue-signaling.



Before a country can conduct cancer research, explore outer space, or defeat its enemies thousands of miles away, its citizens must have access to affordable fuel, food, and shelter.



But ideologues now restrict irrigation water, gasoline supplies, power generation, and timber production. They may seem woke and enlightened to each other, but they are indifferent to the exorbitant cost of living, the growing shortages of necessities, and the hundreds of thousands of homeless living amid filth, excrement, and disease on the nation's urban sidewalks.



Social media fights, the cancel culture wars between celebrities and elites, the virtue-signaling of academics and actors—all of it means nothing if Americans do not have safe roads; viable travel; affordable gas, food and housing; and safety in their homes.



Increasingly, they do not have these things. Woke leaders are losing the ability to do the hard and essential work of civilization, largely because they are obsessed with the dispensable.



We live in a world of cellphones, Skype, and Zoom. But high tech has become a mere veneer pasted over medieval urban streets and Depression-era highways. It is more dangerous to walk the nighttime streets of Chicago than those of war-torn Kabul.



Until our officials can ensure a humane and sustainable standard of living, we have no business lecturing others abroad, much less conducting endless witch hunts of our own at home.

https://www.theepochtimes.com/mkt_morningbrief/does-america-still-work_3968640.html?utm_source=morningbriefnoe&utm_medium=email&utm_campaign=mb-2021-08-28&mktids=5c4b8f881e79eed20c056083cd2388ad&est=ylHHeyf8FChnP9EHcXEWJEs0aZToEjoFPgfCRT6%2BxaAkEepiVdvuNvzM1TUkAajfkg%3D%3D">https://www.theepochtimes.com/mkt_morni ... jfkg%3D%3D">https://www.theepochtimes.com/mkt_morningbrief/does-america-still-work_3968640.html?utm_source=morningbriefnoe&utm_medium=email&utm_campaign=mb-2021-08-28&mktids=5c4b8f881e79eed20c056083cd2388ad&est=ylHHeyf8FChnP9EHcXEWJEs0aZToEjoFPgfCRT6%2BxaAkEepiVdvuNvzM1TUkAajfkg%3D%3D