Business

Experts thought they knew how the economy worked. After the pandemic, they’re not so sure. on December 7, 2023 at 11:00 am Business News | The Hill

Published

12 months ago

December 7, 2023

The American economy, while never simple, was at least somewhat understood — until the pandemic upended even the most basic assumptions, experts told The Hill this week.

From the recession that didn’t happen, to the relationship between unemployment and inflation, to the reason that inflation took off in the first place, to the disconnect between national economic performance and people’s experience of it, to the efficacy of interest rate hikes — American economics and the people who follow it are having an identity crisis.

It’s not clear how it’s going to resolve.

Some economists feel vindicated by what they’ve seen play out, while others have changed their positions. Others have suggested entirely new models are needed and have encountered pushback from colleagues on that suggestion as well.

But no matter how you frame it, it’s undeniable that where there once was confidence, now a fretful mood has descended over a discipline trying to reconcile long-held dogmas with the near-wartime economic conditions brought on by the pandemic and the sensational recovery that followed.

“What you have is a shake-up of economics here in the United States, because we’re having a shift again,” Richard Wolff, emeritus professor of economics at the University of Massachusetts Amherst and a visiting professor at the New School, told The Hill.

“It remains to be seen in this episode to what extent the normal relationships of many, many kinds — labor, spending, inflation and others — will go back to their pre-pandemic norms, or will be permanently perturbed,” former Federal Reserve Vice Chairman Alan Blinder, a Princeton University economist, told The Hill.

Blinder, who oversaw a period of quantitative tightening in the mid-1990s during the Clinton administration, said the very efficacy of monetary policy is now up for debate.

A quasi-wartime economy plays by different rules

Economists see the end of World War II, when debt-to-gross domestic product (GDP) ratios were about as high as where they are today and inflation was above 10 percent, as a point of comparison for the economy of today.

“The only real precedent that I can identify to the pandemic-era exertion of state control over the economy would be the two world wars,” Daniel Sargent, a professor of the history of public policy at the University of California, told The Hill in an interview.

“It’s also significant that some of the statutory authority that the federal government leaned upon in order to exercise the degree of control that it did derived from [the] Trading with the Enemy Act of 1917,” Sargent added.

While the economy of the 1970s also experienced a series of state interventions, including price controls as part of the “Nixon shock” intended to resolve inflation, the deficit spending of the pandemic makes the post-World War II period the most relevant analogue for today’s economy, Sargent said.

The sudden switch to such a high level of state intervention is likely a central reason that many traditional assumptions have broken down.

The comparison to the post-WWII period was also top of mind for Harvard University economist Stephen Marglin.

“During the pandemic, the same thing happened [as during the war]. There weren’t the civilian goods being produced, and people did get money, but they couldn’t spend it because the economy was shut down, just like the civilian economy had been shut down during WWII. That’s the analogy,” he told The Hill.

Marglin said that a doctrinal shift within economics akin to those that reshaped the discipline in the 1930s and again in the 1970s “probably should happen” but that he wasn’t seeing any immediate signs of a major course correction.

Causes of inflation spark debate but unite major thinkers

While the nation’s current battle with inflation has sparked a small industry of rhetorical debate, many experts The Hill spoke to said there’s an implicit agreement among different camps that stitches the different arguments together.

Republicans and conservative economists tend to argue that inflation was caused primarily by the trillions in deficit spending the government sent out to bolster households and businesses during lockdowns.

Democrats and liberal economists focus on muddled supply chains and even corporate greed as the primary drivers.

But the private-sector response to the public-sector spending spans both these explanations, economists say.

“What we had was a situation in which corporations across America understood that the money pumped into the economy to cope with the crash that we were due to have, coupled with the pandemic, was an extraordinary time. The government pumped in enormous amounts of money, enormous amounts of fiscal stimulus, and this made it possible to raise prices to improve profitability,” the New School’s Richard Wolff said.

While the cash injection into the economy made it possible for companies to raise their prices, it also allowed people to keep spending money, helping to stave off recession.

“The central view, I feel, is totally vindicated,” Hoover Institution economist and former University of Chicago finance professor John Cochrane told The Hill. “The central reason we got inflation is the government printed up about $3 trillion and borrowed another $2 trillion, and sent people checks.”

“That’s also consistent with why inflation eased, even without the Fed really doing anything,” he added. “It did not repeat 1980 to 1982 when interest rates were well below inflation even after the Fed started raising them. A one time fiscal blowout raises the price level, so you get a burst of inflation that eventually goes away.”

So why haven’t we seen a recession?

“A US recession is effectively certain in the next 12 months,” Bloomberg News reported in October of last year, citing its own economic model.

“The latest recession probability models by Bloomberg economists … forecast a higher recession probability across all timeframes, with the 12-month estimate of a downturn by October 2023 hitting 100 percent,” the economists found — erroneously.

Some big-time financial players got swept up in the groupthink on recession.

Bank of America CEO Brian Moynihan predicted a “mild recession” in 2023, and JPMorgan Chase CEO Jamie Dimon said a “hurricane” was forming over the economy.

Even the Federal Reserve predicted a “mild recession” in March before pulling that call later in the year.

Those economists could be forgiven for their confusion: Usually, after a central bank raises interest rates by more than 500 basis points, which makes financing more expensive for both businesses and consumers, the economy slows down.

Not so in 2023. Quarterly GDP growth has exceeded 2 percent for the last five quarters, rising as high as 5.2 percent annualized in the third quarter. Corporate profits have been through the roof.

Princeton’s Alan Blinder said the channels by which the Fed slowed the economy in the mid-1990s seem to have dried up during the current cycle.

“I can tell you for sure, though we didn’t relish enunciating this, that what we thought we were doing is slowing the economy down by putting the squeeze on the auto industry and housing. Neither of those channels seem very much to have worked this time,” he said.

Dean Baker, an economist with the Center for Economic Policy and Research, told The Hill much the same thing.

“It didn’t work through the usual channels,” he said, specifically citing new housing starts, which were relatively unresponsive to Fed rate hikes, as well as an unexpectedly strong performance of net exports.

Severed links between employment, inflation and interest rates

Perhaps the most central relationships that have been thrown into doubt are those between the rate of inflation, the level of interest rates and the level of employment.

Higher and rising prices are correlated through labor costs with higher levels of employment. And higher interest rates, which squeeze the economy, are associated with lower employment and therefore lower prices.

But as the Fed raised rates, and the annual inflation rate descended from 9 percent to just above 3 percent over the past year and a half, unemployment stayed below 4 percent the whole time. This breaks the rule.

“[Rate hikes] didn’t have the effect that just about any of us expected. If you told me the Fed was going to raise rates to 5.25 percent and the unemployment rate was going to remain under 4 percent, I wouldn’t have believed you,” Baker told The Hill.

Does Wall Street reflect America’s real economy anymore?

Surging profitability within the economy, which reached its highest level after the pandemic since the 1920s as a share of gross domestic income, has done little to raise the public’s economic mood.

Profits from current production increased $105.7 billion in the third quarter, compared with an increase of $6.9 billion in the second quarter, Commerce Department data released last week shows.

About 58 percent of Americans own stock in Wall Street companies, according to the Fed’s latest survey of consumer finances.

But that ownership is overwhelmingly skewed toward the extremely rich. In fact, the 99th to 100th percentile of richest households own the majority of all corporate equities in the U.S., a distribution that took off after the pandemic and is near a record high.

While the top 1 percent owns more than half of the stock market, the bottom 50 percent owns less than 1 percent of it.

That may be why just 19 percent of U.S. adults rate economic conditions as excellent or good “while 46 percent say conditions are only fair and 35 percent rate the economy as poor,” as public opinion researchers at Pew found earlier this year.

Despite many ostensibly excellent metrics spanning employment, GDP and decelerating inflation, public approval of President Biden’s economic stewardship is low. Only 32 percent of Americans think Biden is doing a good job with the economy, according to Gallup.

While wage growth has just about kept pace with price growth over the pandemic, longer-term trends in income distribution are almost certainly adding to Americans’ melancholy.

While the profit share of the economy hit 8.5 percent in 2022 and has been generally rising since around 1990, the share of the economy devoted to paying workers has fallen dramatically since 1970, dropping from about 51.6 percent on national income to 43.1 percent now.

“We really do need additional tools for combatting supply chain issues and excess demand. The reliance on this one sledgehammer of Federal Reserve interest policy is not very good,” Harvard’s Marglin told The Hill.

Traditional divisions between monetary policy, which is handled mainly by the Fed, and fiscal policy, which is handled by Congress, mean that even while the field of economics may be going through a period of change, policymakers may have limited tools to turn those changes into reality.

Administration, Business, International, News, Policy, corporate profits, economics, inflation, Interest rates, unemployment, US economy, Wages The American economy, while never simple, was at least somewhat understood — until the pandemic upended even the most basic assumptions, experts told The Hill this week. From the recession that didn’t happen, to the relationship between unemployment and inflation, to the reason that inflation took off in the first place, to the disconnect between…

Business

The Cities Bracing for Trump’s Immigration Crackdown

Published

1 week ago

November 8, 2024

Bolanle Media Staff

In the wake of Donald Trump’s recent election victory and his promise of “the largest deportation operation in American history,” several major U.S. cities are bracing for potentially seismic shifts in their economic and social landscapes. As the nation grapples with the implications of this proposed policy, urban centers that have long been havens for immigrant communities find themselves at the epicenter of a looming storm.

Los Angeles, often dubbed the “City of Angels,” stands to lose more than its celestial nickname suggests. As a primary gateway for immigrants, the city’s vibrant tapestry of cultures and its economic engine could face significant disruption. From the bustling streets of Koreatown to the sun-drenched orchards of the Central Valley, the absence of undocumented workers could leave gaping holes in the city’s workforce and cultural identity.

Across the country, New York City, with its iconic skyline and melting pot reputation, faces its own reckoning. The Big Apple’s 5.9 million immigrants, many of whom are undocumented, form the backbone of industries ranging from construction to healthcare. The potential exodus could transform neighborhoods like Jackson Heights and Flushing, altering the very essence of what makes New York a global city.In the Sunshine State, Miami’s tropical allure belies the turbulent times ahead. Home to 2.5 million immigrants, the city’s economy relies heavily on sectors like tourism and hospitality – industries where undocumented workers often fill crucial roles. The potential deportation of these workers could send shockwaves through Miami’s economic ecosystem, from South Beach’s glitzy hotels to the agricultural heartlands of South Florida.

Chicago, the “City of Big Shoulders,” may find those shoulders significantly weakened. With 1.7 million immigrants in its metropolitan area, the Windy City’s diverse neighborhoods and industries face an uncertain future. From the meatpacking plants to the tech startups, Chicago’s economic resilience could be tested like never before.

In the Lone Star State, Houston and Dallas stand as twin testaments to the complexities of immigration policy. These Texas titans, each home to large immigrant populations, could see their booming economies stumble. The construction sites that dot their ever-expanding skylines and the service industries that keep these cities humming could face unprecedented labor shortages.

Out West, the San Francisco Bay Area’s reputation as a bastion of innovation and progress could be challenged. The region’s tech industry, often reliant on immigrant talent, might find itself grappling with a new reality. From Silicon Valley’s coding campuses to the agricultural expanses of the Central Valley, California’s economic powerhouse could face a reckoning. Phoenix, rising from the Sonoran Desert, could see its growth trajectory altered. As Arizona’s urban center, it stands at the forefront of the immigration debate, potentially facing not just economic impacts but social and political upheaval as well.

These cities, along with others like San Diego and Las Vegas, are not just facing potential economic disruptions. They are staring down the barrel of profound social change. Family separations, community fragmentation, and the erosion of cultural enclaves built over generations are all possible consequences of mass deportations. Moreover, the fiscal implications are staggering. Undocumented immigrants contribute billions in taxes annually, often without receiving the full benefits of their contributions. Their sudden absence could leave gaping holes in city budgets, potentially affecting public services and infrastructure projects.

As these urban centers brace for impact, the debate rages on. Supporters of stricter immigration policies argue for the need to enforce laws and protect American jobs. Critics warn of economic devastation and the unraveling of America’s urban fabric. What’s clear is that America’s cities stand at a crossroads. The coming months and years will likely reshape urban landscapes in ways both visible and invisible. From the foods we eat to the services we rely on, from the neighborhoods we call home to the very character of our cities, the impacts of this proposed immigration crackdown could be far-reaching and long-lasting. As the nation watches and waits, these cities – vibrant, diverse, and economically vital – find themselves on the front lines of a policy that could redefine what it means to be an American city in the 21st century.

Bolanle Media is excited to announce our partnership with The Newbie Film Academy to offer comprehensive courses designed specifically for aspiring filmmakers. Whether you’re just starting out or looking to enhance your skills, our resources will provide you with the tools and knowledge needed to succeed in the competitive world of screenwriting. Join us today to unlock your creative potential and take your first steps toward crafting compelling stories that resonate with audiences. Let’s turn your ideas into impactful scripts together!

Business

How Trump’s Deportation Plans Could Reshape Major Cities

Published

1 week ago

November 8, 2024

Bolanle Media Staff

In the wake of Donald Trump’s recent election victory, his ambitious plans for mass deportations have thrust America’s urban centers into the spotlight. As the nation grapples with the potential implications of what Trump calls “the largest deportation operation in American history,” cities across the country are bracing for significant changes that could reshape their economic, social, and cultural landscapes.

The stakes are particularly high for metropolitan areas like New York, Los Angeles, Houston, Dallas, and Miami, which host the largest populations of unauthorized immigrants. These cities, along with other major urban hubs such as Chicago, Washington D.C., and San Francisco, stand at the forefront of a looming transformation that could reverberate throughout the nation.

Economic Tremors

Economists warn that the proposed deportations could send shockwaves through urban economies. Mark Zandi, chief economist at Moody’s, cautions that businesses would face “significant challenges” if a substantial number of immigrants were removed. Industries such as construction, hospitality, and healthcare—pillars of urban economies—could face severe labor shortages.

Joe Brusuelas, chief economist at RSM, emphasizes the potential ripple effects: “The native-born workforce cannot meet current labor demands.” This labor gap could lead to increased wages, potentially rekindling inflation—a concern that looms large over city planners and policymakers alike.

Community Fabric Under Strain

Beyond economic considerations, the social fabric of cities hangs in the balance. Elena, a Nicaraguan immigrant in Houston, voices a fear echoed in immigrant communities across the nation: “I’m scared… This is my home.” The threat of family separations, particularly in mixed-status households, casts a long shadow over urban neighborhoods.

Immigrant advocacy groups like FIEL are mobilizing, advising clients to prepare for “anything that can happen.” This atmosphere of uncertainty could lead to decreased community engagement and cooperation with local authorities, potentially impacting public safety and community cohesion.

Cities at a Crossroads

As the debate intensifies, cities find themselves at a crossroads. Some, like New York and Los Angeles, have historically positioned themselves as “sanctuary cities,” often at odds with federal immigration enforcement. The impending clash between federal policy and local governance promises to be a defining feature of this new political landscape.

Meanwhile, the logistical challenges of implementing such a massive deportation operation remain daunting. Questions abound regarding detention facilities, transportation networks, and the sheer manpower required to carry out Trump’s vision.

Looking Ahead

As America’s urban centers brace for potential change, the full impact of Trump’s deportation plans remains to be seen. Legal challenges are all but certain, and the resilience of America’s cities will be put to the test.

What is clear is that the coming months and years will be pivotal for urban America. As Jason Miller, a senior Trump adviser, puts it, the plan is to “immediately reinstate” immigration policies from Trump’s first term. For America’s cities, this could mean a period of unprecedented change, challenge, and, potentially, transformation.

As the nation watches and waits, the story of America’s cities in the face of this ambitious deportation plan is just beginning to unfold. The outcome will undoubtedly shape the future of urban life in America for years to come.

Bolanle Media is excited to announce our partnership with The Newbie Film Academy to offer comprehensive courses designed specifically for aspiring screenwriters. Whether you’re just starting out or looking to enhance your skills, our resources will provide you with the tools and knowledge needed to succeed in the competitive world of screenwriting. Join us today to unlock your creative potential and take your first steps toward crafting compelling stories that resonate with audiences. Let’s turn your ideas into impactful scripts together!

Business

Donald Trump Wins 2024 USA Election

Published

1 week ago

November 6, 2024

Bolanle Media Staff

Based on the election results, Donald Trump has indeed won the 2024 U.S. presidential election, defeating Vice President Kamala Harris. Here’s an analysis of the key statistics and implications:

Electoral College Victory

Donald Trump has secured the presidency by winning crucial battleground states and flipping some key states that were previously held by Democrats. The final Electoral College tally is still being determined, but Trump has surpassed the 270 electoral votes needed to win.

Battleground State Performance

Trump’s victory was largely secured by winning several critical swing states:

Wisconsin: Trump’s win here was pivotal in securing his path to victory.
Pennsylvania: This state flipped back to Republican control.
Georgia: Another key state that Trump managed to win back.
Michigan: Trump successfully flipped this traditionally Democratic stronghold.

Popular Vote and Voter Priorities

While the final popular vote tally is still being calculated, exit polls provide insight into voter priorities:

Economy and democracy were top concerns for voters.
Abortion and immigration also played significant roles in voter decision-making.

Congressional Control

The election results extend beyond the presidency:

Republicans are set to take back the Senate majority, securing at least 51 seats.
Control of the House of Representatives remains undetermined.

Media Implications

The outcome of this election could be seen as a challenge to mainstream media narratives for several reasons:

Polling Discrepancies: Many pre-election polls suggested a tight race or even a slight Harris advantage in key states. Trump’s victory, particularly in battleground states, may indicate that polls underestimated his support.
Narrative Shifts: Throughout the campaign, much of the mainstream media focused on Trump’s legal challenges and controversies. His victory suggests that these issues may not have resonated with voters as much as economic and policy concerns.
Voter Priorities: The emphasis on issues like the economy and immigration in voter decision-making may indicate a disconnect between media focus and voter concerns.
Electoral Predictions: Many mainstream outlets were cautious about predicting a Trump victory, even as results began to favor him. This hesitancy could be seen as a reflection of broader media skepticism about Trump’s chances.
Underestimation of Trump’s Base: The results suggest that Trump’s core support remained strong and potentially grew, despite negative coverage in much of the mainstream media.

It’s important to note that while the election outcome may challenge some media narratives, it doesn’t necessarily invalidate all mainstream reporting. The complex factors influencing voter behavior and the challenges of accurate political forecasting remain subjects of ongoing analysis and debate.

As the dust settles on this historic election, both the media and political analysts will likely engage in extensive reflection on the factors that led to Trump’s victory and the implications for future political coverage and analysis.