We have been told of the “surprise” of economic forecasters by strong employment growth numbers reported by the Labor Department, with unemployment figures near pre-pandemic lows, yet we hear reports of a record productivity “slump” in the first half of 2022, and the economy has seen contraction for two consecutive quarters, which suggests a “recession” but economists are not willing to call it as such. But then we have JPMorgan CEO Jamie Dimon admitting that while the economy is currently “strong” and that businesses and consumer credit is in “good shape,” he nevertheless claims that because of Fed policy, oil prices and the effect of the war in Ukraine, the country is in for something worse than a recession, in fact claims that there is a 40 to 60 percent chance of a “harder recession” or “something worse.”
Inflation has been high, but it isn’t necessarily true that people willingly buy product at inflated prices. I used to purchase a hamburger or chips at a convenience every day on my way to work; now I almost never do because of price increases that seem a little more steep than is justified. After all, I don’t really need these items, healthwise or otherwise. But I haven’t completely curbed my spending since I haven’t noticed inflation as being a problem with the products I purchase from Amazon. I walk or take a bus for transportation, so oil prices haven’t affected my pocketbook. Things are not that “bad” for me, but then only because my needs are not too great.
Of course that isn’t true for most people in my income bracket, as it isn’t true for CEOs, although for different reasons. White working class voters who vote Republican almost exclusively on “cultural” issues continue to be willingly in on the biggest con in this country’s history: that tax cuts for the rich and corporations eventually “trickle down” to help float all boats instead of sinking the ones with already leaky hulls. This has been proven to be a fallacy since the beginning of time, but was put into practice as a political philosophy when Ronald Reagan became president.
It might be useful to remember that high marginal tax rates did not mean all income was taxed at that rate. The tax philosophy behind FDR’s New Deal policies was that what was considered “excessive” income that the rich paid themselves while millions were unemployed was unjust in time of great national peril. A 90 percent marginal tax rate on income over a specified amount meant that it wasn’t worth it for the rich to put an excessive amount of money in their pockets because most of it was going to be taxed, so that money had to be used for other things, like job creation, livable wages and investment. The taxes that went to the government was typically recycled into the economy, so it didn’t go to waste as it would have if it just went into pockets of the rich.
Instead, we went through the dog and pony show again with the 2017 Tax Cuts and Jobs Act, which of course never had anything to do with “jobs.” Once again, we were told that if the rich and corporations paid less in taxes, the money saved would lead to more jobs being created. The unemployment rate when the law was enacted was already down to 4.1 percent, so there was almost no relation to job creation with the law to start with. Furthermore, what harm this law did was two-fold: it had no effect on the alleged intention to “curb” increasing CEO pay, only further increased the wealth gap in the country—and curtailed investment in production and infrastructure improvements by removing the incentive to use such investments for tax right-offs.
Thus it is somewhat nauseating to listen to these “captains of industry” predicting the end of the world while they themselves insure that they will have accumulated enough ill-gotten gains to insulate themselves from that fate. But why does it have to be that way? Why is inflation so high when there is so many people working and capable of producing more products for people to spend their money, which keep prices at manageable levels, and everyone benefits?
Well, as mentioned previously, that just isn’t happening. According the website Marketplace, the pandemic is to “blame,” for forcing businesses to concentrate less on investing in technology to improve productivity and more on keeping the work environment “safe.” But this was not the excuse pre-pandemic; an article that appeared in the Federal Reserve Bank of Cleveland’s website reported that “Contrary to the expectations of some observers, the permanent cut in the corporate tax rate may have held investment down rather than stimulated it. The reason has to do with how companies finance their investment and what expenses they can deduct from their taxable income,” and the way the corporate tax law was structured it served as a disincentive: “A cut in the corporate tax rate, then, decreases the subsidy and discourages investment.”
So what is happening? Gas prices are starting to go down, and inflation is slowing, but we are still headed to a major recession, maybe even greater than the Great Recession of 2007-2008 according to some people. According to a recent article in the American Institute of Economic Research, noting the preference for discussing the economy through an unhelpful political partisan lens, observes that “As recessions go, the current one is an odd duck indeed. Examples of recessions where the labor market has been strong, let alone as strong as the current one, are essentially nonexistent in recent economic history.”
However, the article doesn’t address the “why” the economy is shrinking, only suggesting that the reason why the job figures seem so good is that people are reacting to concerns about the economy and their shrinking in value 401Ks, and grabbing whatever jobs are available, which is contrary to the notion that some employers are finding it difficult to find workers because those workers were looking for better opportunities, or supposedly were taking advantage of “generous” unemployment benefits.
Confusion reigns to explain the current two-quarter contraction, which in the past would be indicative of a recession, but some economists are “unsure” because there is no “model” for how the economy is affected coming out of an enforced pandemic lockdown, especially given the strong jobs picture at the moment. Some say that high inflation is causing a significant cutback in consumer spending, which is causing an “unnatural” contraction—which is interesting, given that this is the purported intent of the Federal Reserve’s currently high interest rates. The problem with that is that while the lower-income bracket may be pulling back on its spending, the higher income people who benefited immensely from the 2017 tax law continue to spend gratuitously and contribute to inflation—which the Fed reacts to by increasing interest rates again and causing further slowdowns in the economy and further hardship on the lower-income bracket.
I’m not sure what the idea is. Perhaps if people stop buying things, inventories will increase, and prices will then be forced to stabilize or decrease to attract people to start spending again. However, some believe before that happens, because of higher interest rates and how businesses typically respond to it, unemployment will rise sharply at some point, and again it will be the people who benefited from the 2017 tax law who won’t be affected by it, only the lower-income workers.
In the meantime, even the “experts” don’t really know what is going on—even as we have politicians trying to pretend that they do.
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