Economics
The State of the US Economy

NEWS & POLITICS ... Paul Krugman: The U.S. Economy Is Far More Fragile Than It Looks ... Just because we avoided recession in 2017 doesn't mean we will in 2018.

Burgess COMMENTARY
The Trump bump in the stock market has lasted very well ... but the underlying reason for this has been the very solid, rather slow, progress out of the Bush / GOP / Bankers disaster of 2008 by President Obama and his administration. The economic turnaround that Obama & Co engineered will rank as one of the great strategic wins of all time. Krugman is right to alert us all the fragility of the US economy, but I think the underlying reason for its weakness goes back to GOP policies and ideologies that go back to Reagan in the 1980s and now about 40 years of declining wealth for working Americans and massively greater wealth for those in a position to game the economy. The world can be a better place ... but I am not convinced that President Trump and his administration have any idea how to make that happen ... nor indeed many of those with wealth and power in corporate and financial leadership positions. Peter Burgess ... http://truevaluemetrics.org
Peter Burgess

NEWS & POLITICS Paul Krugman: The U.S. Economy Is Far More Fragile Than It Looks Just because we avoided recession in 2017 doesn't mean we will in 2018.
Paul Krugman Photo Credit: YouTube Screengrab

Paul Krugman will be the first to admit he got the first year of Donald Trump's presidency wrong. On election night, he let his 'political feelings distort his economic judgment,' predicting that Trump's upset victory would lead to a recession or even a depression. It hasn't; in fact, you'd never know from the trendlines that the American electorate gave a former reality show host access to nuclear weaponry. But that doesn't mean it can't or won't sometime soon, even as early as 2018.

In his New Year's column, Krugman acknowledges that the U.S. president ultimately has far less influence over the economy than the chair of the Federal Reserve. Or at least that's the case in 'normal times.'

'This only stops being true when the economy is so depressed that monetary policy loses traction, as was the case in 2009-10,' he writes. 'At that point it mattered a lot that Obama was willing to engage in fiscal stimulus, and it also mattered a lot, unfortunately, that Republican opposition plus Obama’s own caution meant that the stimulus was much smaller than it should have been.'

Krugman contends that as we enter the new year, we are uniquely ill-prepared for any kind of destabilizing event, be it a nuclear standoff with North Korea, a second Iranian revolution that disrupts oil supplies, or a tech stock bubble bursting like it did in 1999. That's because interest rates are already historically low, and there's little central bankers can do to stimulate the economy should we find ourselves in a downturn.

'That’s not a critique of central bankers. All indications are that for whatever reason—probably low population growth and weak productivity performance—our economies need those low, low rates to achieve anything like full employment,' he writes. 'And this in turn means that it would be a terrible, recession-creating mistake to 'normalize' rates by raising them to historical levels.'

Krugman's larger point is that our return to normalcy since 2008 remains incredibly fragile, and that 'sooner or later' something will go wrong that disrupts the country's steady growth. When that does, we'll be relying on the likes of Donald Trump and Steve Mnuchin to guide us through the crisis.

'You might have thought that such concerns would weigh on markets even now,' he concludes. 'But for whatever reason, investors are currently in what-me-worry mode. And let’s hope that they’re right—that by the time stuff happens, we’ll actually have non-delusional people in charge.'