It Is Still The Stupid Economy

Truth be told Presidents don’t have that much control over the economy. They get the blame when it is bad. They rarely get the credit when it is good. We are about to pass the baton to a new administration that promises a very different approach. So lets look at what has happened so we can compare it to what is about to happen.

Did The Economists Get it Wrong? Again!

The current administration in the wake of the economic collapse of the pandemic adopted a trickle up approach to the economy. Build it from the middle out and the bottom up. They inherited an economy with a year over year inflation rate of 9%. Plenty of disagreement on why that happened, Supply Chain issues, Corporate Greed, Out of Control Deficits, Too much governments spending, increased labor costs, increased energy costs. Okay we get it. Lots of reasons. Not the scope of this article to parcel out which ones were the cause.

In response the FED increased borrowing costs and interest rates ascended. The era of 3% mortgages went the way of the Mullet. Investment Elites were sure that a recession was just around the corner. They scoffed at the notion of a soft landing.

Even economists in their ivory tower got it wrong. AGAIN! Steady GDP growth, steady job growth and steady wage growth above the inflation rate which declined from 9% to somewhere around 2.5%. An unemployment rate that stayed below 4% for two consecutive years.  “We Are Hiring” signs throughout our communities. The DOW, NASDAQ and S&P 500 nearly doubled.  Somehow in spite of the pundits we muddled through and managed a soft landing.  

Where We Are Today

Significant GDP growth 21.7 trillion to 27 trillion. The last job reports came in at over 250,000 new jobs well above predictions. Continued wage growth above the inflation rate. A robust consumer economy. On the downside, a stagnant housing market and borrowing costs remain high. So that is the finish line for one administration and the starting line for the new administration.

This new administration has promised tariffs, tax cuts and deregulation to spur an economy which they claim is a horrible mess. Economists who don’t have a great track record have predicted that tariffs will result in inflation. In the past tax cuts were predicted to spur the economy and pay off the deficit. It did one but not both. Deregulation will increase economic growth but at what price. Increased global warming and degraded environmental conditions have a cost. No telling what economic impact that the wildfires of Los Angeles will have. Los Angeles County has a greater population and therefore greater share of economic activity than forty states. No way to predict what their environmental devastation will cost in terms of economic growth, but it will have an impact.  

Once Again It Is the Economy Stupid

The recent election results were influenced by a lagging sense in the middle class that their economic conditions had not improved over the last five years. The average voter responds more to the price of milk, the difficulty of buying a home, than meta data on wage or GDP growth.

It is unclear what impact this new administration will have on our economic well-being. In my view they have been handed a pretty good starting point. Let’s hope they don’t screw it up. We will take another look in six months.