infrastructure investment

The Battle to Combat Recession Slowly Begins to Take Shape

Economists agree a recession is perhaps only months away. There is less agreement and discussion on how to combat the recession when it occurs. One think tank argues the cure is growing aggregate demand by addressing income inequality. [Illustration Credit: Ji Sub Jeong/Huffpost]

Economists agree a recession is perhaps only months away. There is less agreement and discussion on how to combat the recession when it occurs. One think tank argues the cure is growing aggregate demand by addressing income inequality. [Illustration Credit: Ji Sub Jeong/Huffpost]

The United States is enjoying its longest sustained economic expansion since World War II, but there are signs a recession could occur in the next 12 to 18 months. An emerging question is what weapons US policymakers will have at their disposal to combat an economic downturn.

Historically, the tools to dig out of recession have included higher spending, lower interest rates and tax cuts. However, those tools have been compromised and don’t have much headroom. Federal budget deficits are already at economic stimulus levels, interest rates remain low and taxes have been cut.

Many economists believe trade wars can tip US and global economies into recession and possibly make a recession deeper and longer. The Smoot-Hawley Tariff Act of 1930 is credited with adding to the economic strain of the Great Depression by constricting international trade, lowering the gross domestic product and forcing job layoffs. The escalating US-China trade war has moved from a negotiating tactic to a policy preference by the Trump administration, with profound impacts on manufacturing, agriculture and other business sectors in a far more globalized economy than the 1930s. 

The Republican tax cut in 2017, which largely benefitted corporations and wealthier taxpayers, has failed to generate a sustained stimulus as new business investment has stalled, in part because of uncertainty about disruptions in international trade and global supply chains. Meanwhile, Congress and the White House have agreed to a budget package extending past the 2020 election that will raise the deficit and national debt even more.

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President Trump has applied continuous pressure on the Federal Reserve Bank to cut interest rates faster and deeper. Critics charge Trump wants to extend the current economic recovery past the 2020 election, even if it risks longer-term economic problems.

One tried-and-true idea to stimulate the economy that rarely gets mentioned is an infrastructure investment package. There has been big talk from the White House to Capitol Hill about investments ranging from $1 to $2 trillion. However, talk breaks down when it comes to paying for such investments in roads, bridges, water systems, public transit and expanded broadband.

Political dialogue about the economy has become as polarized as other hot-button issues such as immigration, health care and gun legislation. As the threat of recession rises, more politicos, especially those appearing on the 2020 election ballot, will have heightened interest in reversing a downturn. That may account for the relatively sparse public discussion of fighting a recession when one next occurs. 

The Economic Policy Institute (EPI), a nonprofit think tank that promotes economic policies benefitting low- and middle-income workers, offers some perspective on how to approach the next recession. In a report issued in April, EPI argues for “an effective fiscal boost to aggregate demand growth,” adding, “Policies should be constructed not only to be effective economically, but also to be effective politically, in order to ensure broad and engaged popular support.”

The EPI report says, “A key lesson from the Great Recession is that fiscal policy is the most effective tool for aiding recovery. Monetary policy can lay the groundwork for fiscal policy, but really cannot be relied on to play more than a supporting role for fighting recessions.” Notwithstanding record deficits and spiraling national debt, EPI believes the United States has the “fiscal space” for a substantial stimulus package.

According to EPI, the United States is ill-prepared for a looming recession because it has failed to address income inequality during the historically long economic expansion.  Worsening inequality, it claims, has put a “drag on aggregate demand growth.” Spurring demand, EPI says, is what will get the country out of recession.

A fiscal stimulus in the form of an infrastructure investment or tax cut that seeks to grow demand by shrinking income inequality is likely to be viewed quite differently by Republicans who control the Senate and White House and Democrats who control the House and are running for President. Expect sparks to fly as political campaigns get into full gear this fall.

If predictions hold true and the 2020 election comes down to a handful of swing states, as it did in 2016, the debate over a fiscal stimulus, which EPI favors, or monetary stimulus, which Trump prefers, could be a key factor in who working-class voters support.

The US-China trade war is surfacing as a political talking point on the economy, as Democrats point out the toll tariffs are taking on American farmers, businesses and consumers. However, most of the leading Democratic presidential candidates don’t have a solid trade policy alternative, which makes a recession-fighting fiscal stimulus a more inviting option, especially on the campaign trail.

The Curiously Missing Debate on the US Economy

President Trump focuses on immigration and tariffs and only occasionally cites strong US economic performance. Democratic presidential candidates are trying to win over primary voters by discussing issues such as universal health care, college debt and social justice. The result is a missing debate on the state and future of the US economy, which polls show is the top priority of a majority of voters.

President Trump focuses on immigration and tariffs and only occasionally cites strong US economic performance. Democratic presidential candidates are trying to win over primary voters by discussing issues such as universal health care, college debt and social justice. The result is a missing debate on the state and future of the US economy, which polls show is the top priority of a majority of voters.

A surging stock market, continued job creation and historically low unemployment have led to rising levels of public approval of Donald Trump in the polls. 

On the flip side, soaring federal budget deficits, protracted trade wars affecting industrial and agricultural sectors and tariffs threatening higher consumer prices are posting warning signs of an impending downward economic cycle, perhaps just before the 2020 election. 

Despite the stakes, bread-and-butter economic policy has taken a decidedly back seat in political debates, even as polling shows the economy remains the top priority of voters. 

Skillfully or impulsively, President Trump focuses on immigration, ‘creeping socialism’ and denigrating Democrats, while only occasionally praising the economy he’s overseen for 2½ years. Democratic presidential candidates, many seeking to curry favor with the increasingly restive progressive wing of the party, talk about health care, immigration reform, college debt, wealth taxes, climate change, social justice and Trump. 

Democrats also campaign in the shadow of the Mueller report and growing calls to impeach Trump. At times it seems as if Trump and his media allies egg on articles of impeachment, which face an uncertain fate in the Democratic House, but certain death in the Republican Senate. 

Absent in most Democratic stumping is any serious, sustained criticism of Trump economic policy. If criticism was to occur, this is what it might look like: 

Budget Deficit: According to the Treasury Department, the federal budget deficit ballooned 77 percent in the first four months of 2019 to $310 billion, up from $176 billion during the same period a year earlier. That period included the largest single month deficit. One reason for the larger deficits was a sharp drop in tax revenue, attributed to the Trump tax cuts. Meanwhile, federal spending has increased 9 percent, including a 12 percent hike in military spending and a 16 percent rise in Medicare outlays.

The Congressional Budget Office has projected a $900 billion deficit this fiscal year. The Office of Management and Budget, which is overseen by the Trump administration, projects the deficit will reach nearly $1.1 trillion – and keep rising through the 2020 fiscal year.

The Trump administration has not pushed very hard for federal spending reductions, settling instead for sending Congress a budget with cuts to Medicare, Medicaid and Social Security, which are political non-starters.

Trump has seemingly walked away from his promise of a major infrastructure investment plan. His own advisers have warned he cannot boost military spending and build new roads and bridges at the same time, especially when congressional Republicans appear unwilling to vote for the taxes to pay for upgraded infrastructure.

The political punch: The economy is cruising along, but only because it is fueled by the equivalent of credit card debt on steroids. The tax cuts and spending spree have effectively ruled out long-term investments in roads and bridges. 

Trade Wars: True to his campaign promise, Trump has upset the trade apple cart by imposing tariffs, first on steel and aluminum, then more generally, with a special gusto for Chinese imports. Trump also has selectively imposed sanctions on Iran and Venezuela. His trade team succeeded last year in negotiating an updated version of the North American Free Trade Agreement, but it still hasn’t been approved by Congress.

The Congressional Budget Office shares its data about federal deficits, budget and revenue projections and marginal tax rates, as well as statistical information about many specific federal programs. If you want to be the smartest person in the room when it comes to the economy, check this out:  https://www.cbo.gov/publication/54918 .

The Congressional Budget Office shares its data about federal deficits, budget and revenue projections and marginal tax rates, as well as statistical information about many specific federal programs. If you want to be the smartest person in the room when it comes to the economy, check this out: https://www.cbo.gov/publication/54918.

Trump claims his tariffs have revived the US steel and aluminum industries and produced substantial revenue. The nonpartisan Tax Foundation confirms tariff revenue reached $70 billion by the end of May 2019, while reducing the US Gross Domestic Product by $50 billion, lowering wages by .13 percent and resulting in a loss of nearly 156,000 American jobs. 

The Tax Foundation also computed the impact of tariffs Trump threatened to impose against China, automobiles and Mexican products. Estimated revenues would exceed $154 billion at a cost of $112 billion in lost GDP, .3 percent decline in wages and loss of nearly 350,000 US jobs.

Then there are retaliatory tariffs by the European Union, India, Turkey, Mexico, Canada and Russia. The US treasury receives no revenue from these tariffs, but lost GDP from them tops $21 billion, wages decline .05 percent and some 67,000 jobs disappear. 

“If all tariffs announced thus far were fully imposed, US GDP would fall by 0.74 percent ($184.07 billion) in the long run, effectively offsetting about 44 percent of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.48 percent and employment would fall 570,591,” according to the Tax Foundation. 

The tariffs have worked a particular hardship on American farmers who have seen foreign markets evaporate, income nosedive and price increases for new equipment. The Trump administration conceded the impact on farmers, won approval for a $12 billion bailout and is seeking another $16 billion to aid farmers. Adding injury to insult, the major beneficiaries of the first bailout flowed to larger corporate farms, not family farms and “patriot farmers.”

The political punch: Tariffs are taxing Americans, raising prices, lowering wages, hurting farmers, losing jobs and posing a threat to continued economic growth. And, they haven’t resulted, at least so far, in great trade deals either.

Looming Downturn: Signs are emerging that an economic downturn may be on the horizon. Economists warn an escalating trade war combined with slowing growth in China and internationally could tip the economy into recession.

There also are troubling indicators.

  • Historically and ironically, recessions occur just when retail sales, industrial production and employment peak, as they have. Household wealth and income also peak just before a downturn.

  • Another historical indicator of recession is when interest rates on long-term bonds are lower than interest rates for short-term bonds for three continuous months, as just happened. This isn’t just a US phenomenon; it is occurring in bond markets around the world. 

Sensing the possibility of a declining US economy heading into an election, Trump has been hectoring Jerome Powell, the man he chose to head the Federal Reserve Board, to cut interest rates. After resisting such action, Powell in congressional testimony last week hinted an interest rate cut may be in the offing as early as this month. 

Powell told Congress, “Based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook.”

The stock market was ecstatic and hit new record highs. Critics warned an interest rate cut now will limit the Fed’s ability to combat a recession when it inevitably occurs.

The political punch: With increased deficit spending, continuing tariffs and a demand for lower interest rates, the administration is playing with fire, dousing a fire and trying to light a fire all at once.

You heard it here, even if you won’t hear anywhere else.

 

Divided Government Could Lead to Infrastructure Collaboration

There has been lots of talk and even more anticipation over the last two years of a mammoth infrastructure initiative. The ascendancy of Democrats in control of the House will put Oregon Congressman Peter DeFazio back in charge of the committee that deals with transportation and infrastructure. He wants a $500 billion package with “real money” sewed up in the first six months of 2019.

There has been lots of talk and even more anticipation over the last two years of a mammoth infrastructure initiative. The ascendancy of Democrats in control of the House will put Oregon Congressman Peter DeFazio back in charge of the committee that deals with transportation and infrastructure. He wants a $500 billion package with “real money” sewed up in the first six months of 2019.

Infrastructure investment is one of the most promising areas of bipartisan collaboration in the new Congress. Oregon Democratic Congressman Peter DeFazio is poised to explore the boundaries of that possibility.

With the Democratic takeover of the House, DeFazio is expected to assume the chairmanship of the House Transportation and infrastructure Committee. In that pending role, DeFazio is touting a $500 billion measure to fund highways, transit, airports and marine projects.

Unlike President Trump’s $1.5 billion infrastructure initiative that relied heavily on private investment, DeFazio is contemplating a measure backed by actual federal funding. Under DeFazio’s plan, Treasury would issue $500 billion in a new type of 30-year bonds that would be repaid by increased federal gasoline and diesel taxes to account for highway construction cost inflation and from lower fuel usage because of federal fuel-economy standards.

In 2017, the 30+year veteran on the House Transportation and Infrastructure Committee introduced a “Penny for Progress” bill that would pay for a $500 billion infrastructure package over 13 years. DeFazio says he isn’t wedded to that idea, but insists he wants to move an infrastructure investment bill before the middle of 2019. “I’m open to any and all options on how we get real funds for infrastructure. But it has to be real money.”

“Infrastructure has been delayed too long,” DeFazio says. “We’ve got to get it done. We’ve got to maintain it. We’ve got to modernize it and we’ve got to move people and goods more efficiently.”

DeFazio suggests airport improvements could be paid for by an increased passenger facility charge. The charge has been pegged at $4.50 per flight since 2000. He wants Congress to mandate spending the balance that exists in the Harbor Maintenance Trust Fund to maintain harbors and shipping channels.

There has been a lot of post-election commentary favoring bipartisan collaboration. Infrastructure investment has the support of mainstream Republicans and Trump, so could be an early test case for finding common ground to pass meaningful legislation in a divided government.

Congressman Sam Graves, a Missouri Republican who could become the Ranking Member on the House Transportation and Infrastructure Committee, has expressed interest in “presenting my vision for our transportation network” and might emerge as a partner to DeFazio in fashioning bipartisan legislation.

A wide array of transportation advocacy groups, including the US Chamber of Commerce, have applauded the idea of a bipartisan infrastructure measure and federal funding to pay for it. 

“We see this as good timing if Congress and the President can come together,” said Bill Sullivan, American Trucking Association’s executive vice president of advocacy. “Everybody knows that we need to invest in infrastructure, but they just haven’t hit that magic moment that Congress is willing to do it.” Maybe that time has arrived.

DeFazio’s position should be the good break needed to revive conversations to replace the I-5 Columbia River Bridge as part of the 2020 reauthorization of the Surface Transportation Act, which his committee will oversee.

Good Jobs Nation Tour Elevates Economic Issues

A labor-backed tour started this week that seeks to put pressure on the Trump administration to keep its campaign promises on jobs, but also may signal a move by Democrats to focus on bread-and-butter issues heading into mid-term elections next year.

A labor-backed tour started this week that seeks to put pressure on the Trump administration to keep its campaign promises on jobs, but also may signal a move by Democrats to focus on bread-and-butter issues heading into mid-term elections next year.

Potential Russian election collusion, failed repeal and replacement of Obamacare and a tone-deaf response to violence in Charlottesville has eroded, but didn’t eviscerate President Trump’s hard-core political support. The Good Jobs Nation tour that began this week could pose a more serious political threat.

The two-week tour is designed to put pressure on Trump to live up to his campaign promises on jobs.

“Trump ran as a working-class hero, so let’s look at the results,” Joseph Geevarghese, executive director of Good Jobs Nation, told The Washington Post. “We’re seven months into his administration and wages are flat. People are still getting pink slips.”

The tour pointedly started in Indiana, home of the Carrier plant that starred in the Trump campaign and the early Trump presidency when he announced a deal with company management to keep manufacturing jobs in the United States instead of shifting them to Mexico in return for $700,000 per year in state tax breaks. Labor leaders say Carrier is laying off workers and moving manufacturing to Mexico despite the deal Trump negotiated.

“He made promises to working-class people,” said Chuck Jones, who represented steelworkers at the Carrier plant. “He said if he were president, jobs would not be leaving this country. Guess what? They still are. He could be signing executive orders. He’s not lifting a finger.”

Organized labor is also irked at Trump for turning his back on an Obama-era rule on overtime and a regulation requiring companies bidding on government projects to disclose labor law violations because business groups opposed them. The Communications Workers of America is upset because the Trump administration has failed to respond to its request for an executive order relating to US-based call centers.

Ironically, Trump has defended his record in office by pointing to an uptick on the stock market, continued steady job growth and a slight increase in wages – indicators Trump the candidate scorned as not reflecting the true economic condition staring at many American workers.

Souring relations with blue-collar workers is not a good political sign for Trump or Republicans generally. Those workers provided the marginal votes that enabled Trump in 2016 to carry traditionally Democratic states such as Wisconsin, Michigan and Pennsylvania and give him an electoral college victory.

The analytics of congressional districts don’t look all that promising for Democrats heading into the 2018 mid-term elections, which means they will need to bear down on economic issues to erode GOP electoral advantages.

The analytics of congressional districts don’t look all that promising for Democrats heading into the 2018 mid-term elections, which means they will need to bear down on economic issues to erode GOP electoral advantages.

The tour doesn’t overlook that fact. One of the stops is in Wisconsin, which will feature Randy Bryce, a labor organizer who is challenging House Speaker Paul Ryan in his re-election bid next year. Wisconsin is where Taiwan-based Foxconn has announced plans to build a plant to make components for the iPhone in exchange for $3 billion in subsidies, a deal that organized labor is opposing.

Trump, GOP leaders and business groups are likely to dismiss the Good Jobs Nation tour as a political ploy by organized labor and leftist Democrats, noting the kickoff speaker in Indianapolis is Senator Bernie Sanders. While the tour itself may not strike a decisive blow to the Trump presidency, it will elevate questions about Trump’s economic plans and his inability, at least so far, to move forward an economic agenda that includes tax cuts and infrastructure investment. Whether Democrats can take advantage is an open question.

Blue and Red State analytics aren’t all that encouraging for a major Democratic comeback in the 2018 mid-term election. But polls do indicate that the issue Trump supporters watch closely is boosting the economy and spreading the benefits to include people who feel left behind economically.

In the words of former White House adviser Steve Bannon, “The longer they [Democrats] talk about identity politics, I got ’em. I want them to talk about racism every day. If the left is focused on race and identity, and we go with economic nationalism, we can crush the Democrats.”

It will be worth tracking whether the Good Jobs Nation tour reveals a crack in Trump’s blue-collar support or signals a new emphasis by Democrats on bread-and-butter issues.

Obama Links Climate Change, National Security

The Obama administration says climate change could be as treacherous to U.S. national security as terrorists, Russia and pandemics.

The Obama administration says climate change could be as treacherous to U.S. national security as terrorists, Russia and pandemics.

The Obama administration is linking climate change to national security, which may not have much immediate impact on a GOP-controlled Congress, but is likely to become a major debating point in the 2016 presidential election.

In a report released today, the White House put climate change on par with terrorism and pandemics as threats to U.S. security. “Climate change is an urgent and growing threat to our national security, contributing to increased natural disasters, refugee flows and conflicts over basic resources like food and water,” according to Obama's 35-page strategy document. 

The President has made fighting climate change a major emphasis of his second term, perhaps as much to elevate it on the political radar screen as to register actual accomplishments. At least one specific recommendation — to diversify the sources of energy for the U.S. military — may have a chance to move forward.

A key theme in the report is the connection between energy security and national security. “Seismic shifts in supply and demand are underway across the globe,” it says. “Increasing global access to reliable and affordable energy is one of the most powerful ways to support social and economic development and to help build new markets for U.S. technology and investment.”

The report calls for actions to increase the nation's resiliency in the face of climate change challenges. That includes more and perhaps different kinds of investment in infrastructure. “The present day effects of climate change are being felt from the Arctic to the Midwest. Increased sea levels and storm surges threaten coastal regions, infrastructure and property. In turn, the global economy suffers, compounding the growing costs of preparing and restoring infrastructure.” 

Buttressing America against challenges caused by climate change, the Obama administration report claims, will increase the country's national security.

A Plea for Pro-Manufacturing Policies

Manufacturing jobs have been the bread and butter for many U.S. families and now an advocate says it's time to invest in what it takes to create and retain those jobs.

Manufacturing jobs have been the bread and butter for many U.S. families and now an advocate says it's time to invest in what it takes to create and retain those jobs.

Gallup says Americans think now is a good time to find a good-paying job. A spokesman for the Alliance of American Manufacturing says now is a great time to invest in jobs that involve making something. 

The U.S. economy is humming along, with many positive indicators. However, one not-so-good metric is the disappearance of so-called middle income jobs, the kind of jobs traditionally found in the manufacturing sector.

Scott Paul, president of the Alliance, says this is a critical time to invest in programs that promote job growth, especially in manufacturing. His suggestions, which are aimed at the new GOP-controlled Congress taking office in January, include:

  • Take advantage of low gas prices to raise the revenue to boost lagging investment in roads, bridges, water and sewer systems and the electricity transmission grid. Paul says 21,000 jobs are created for every $1 billion in infrastructure investment.
  • Reform the federal tax code to encourage domestic manufacturing and discourage outsourcing.
  • Address currency manipulation by China, which gives an advantage to its manufacturers at the expense of U.S. manufacturers.
  • Push for more open markets, but enforce fair-trade rules. 
  • Make smart investments in worker training to create better alignment with high-paying technical jobs that stay vacant for lack of qualified candidates.
  • Foster innovation in technology and processes to keep U.S. production on the cutting edge.
  • Expand and leverage the U.S. energy advantage with growing sources of low-cost oil and natural gas production.

Paul says Americans across the political spectrum consistently express support for pro-manufacturing policies. He sees no reason for the next Congress not to set aside partisan gridlock to inject a shot of growth in a sector that has generated living-wage jobs over most of America for decades.