GROWING PAINED
Economy broken despite GDP
Dear John: In past columns you have written that the US economy is broken and can’t be fixed.
Your articles are very informative, but I wonder if you may have changed that opinion lately.
It was reported recently that the US economy grew at 3 percent for the last quarter even with all the hurricane destruction that took place. The quarter before that, it grew at 3.2 percent.
So what do you think? Do you wish to adjust your earlier feeling that the economy is broken and unfixable? Thank you for your consideration. M.M.
Dear M.M.: Look, don’t get me wrong, and I hope I am wrong. I hope the economy will do just great in the years ahead. This is my economy, too.
Three percent annual growth during a couple of quarters isn’t anything to cheer about — not yet. It has happened before, since the Great Recession, only to fall back to average growth that is far worse than this country historically has come to expect.
And the recent report that showed 3 percent growth in the the third quarter of 2017 was mostly the result of an inventory buildup.
But here’s what I mean about “broken.”
We have federal debt of more than $20 trillion.
The normal process would be for Congress to spend money to get the economy growing faster. But Congress can’t, because it is justifiably afraid to let the debt get any more out of hand. So it can’t spend any more money unless it cuts back somewhere else.
Take your own household as an example. Your wife wants a new refrigerator, but you say, “We can buy it if we don’t take a vacation.”
In the end, you spent the same amount of money. You just changed the purchase from one thing to another.
Now, interest rates: Under normal circumstances, the Federal Reserve will coax rates higher whenever it wants. But despite all the nonsense you are reading, the Fed really doesn’t have that luxury these days. If it raises rates, then it will cost the government — the world’s biggest borrower — a lot more money, and our country’s debt will soar.
Two things that won’t hurt. As Trump (and I) suggested, companies should be allowed to bring profits being stockpiled overseas back to the US at a favorable tax rate. But only if these companies agree to use a portion of those repatriated profits for expansion, which will help the economy.
And, my idea: The president should allow people to withdraw a certain, limited amount of money out of their retirement plans for a specific use that will have a macro-economic benefit. I think the purchase of a home would qualify, but other things would work as well.
The stock market is in a bubble. But if we act fast enough, some of the profits made in the market — and locked up in retirement accounts — can be put to good use.
Dear John: I have read and enjoyed your column for many years.
I have recently read that the subprime mortgage deals are alive and kicking with tacit approval of the government. Am I just naive, or are these people plain stupid in thinking that this will not cause a repeat of 2008?
I would love to know if Trump is aware or approves of these practices. Keep up the good work. M.G. Dear M.G.: Yes — people are stupid and don’t think there will be another housing collapse. So they will repeat the mistakes of 2008.
Thanks for the compliments, by the way.