Commentary: Let’s talk honestly about the health of the economy today. Consumer debt is increasing significantly, due primarily to student debt and auto loans—about double of what they were 10 years ago—at $1.5 trillion and $1.1 trillion respectfully. Consumer spending has been key in economic prosperity since the great recession of 2009—but that will slow as these debts slow growth and spending decreases. Housing formation by college graduates with debt is already crippling that market, even with low mortgage interest rates.
Another concern is the ridiculous trade war started by the Trump administration. Rather than working with our allies to change China’s bad behavior, Trump wanted to go it alone—so now we have less leverage and are involved in a tit-for-tat trade war, and no one knows where or when it will end. Who suffers—Midwest farmers who are going bankrupt and consumers who pay taxes on more expensive imported goods and services.
Throughout history, trade conflicts do not end well. Tried this back in the 1930’s and ended up with the great recession and eventually WW II. There is a principle in economics called comparative advantage—which means whoever can produce a good or service cheaper should provide it—than everyone is better off.
At times we may need to protect an industry with tariffs or quotas—but not as a long-term strategy. Should we destroy the global economic system and improved technologies that has brought the world more peace and prosperity over the last 70 years than any time in history—I don’t think so.
In conclusion, I and many other economists think we are heading into a recession—and I haven’t even talked about the consequences of the increasing Federal debt, which is projected to be $1.0 trillion this year.