Barely man­age­able con­sumer debt loads could trig­ger U.S. re­ces­sion ,

Toronto Star - - OPINION - David Olive

AU.S. re­ces­sion next year? David Rosen­berg, one of Amer­ica’s favourite Cana­dian econ­o­mists, pre­dicts a U.S. re­ces­sion next year if the U.S. Fed­eral Re­serve Board raises the key lend­ing rate as few as four times be­tween now and this time next year.

If not alone, Rosen­berg has lit­tle com­pany among fore­cast­ers bear­ish on short-term U.S. eco­nomic growth. For in­stance, the In­ter­na­tional Mon­e­tary Fund’s lat­est fore­cast puts U.S. GDP growth at a healthy 2.3 per cent this year, and 2.5 per in 2018 — the best per­for­mance of any G7 coun­try.

But Rosen­berg’s warn­ing is well taken.

Rosen­berg, chief econ­o­mist with Toronto in­sti­tu­tional in­vestor Gluskin Sh­eff, points to the 23 mil­lion Amer­i­cans of work­ing age, be­tween ages 25 and 54, who are ab­sent from the work­force. Ac­tu­ally, that dis­turb­ing num­ber does not in­clude ad­di­tional mil­lions of Amer­i­cans of­fi­cially clas­si­fied as em­ployed, but trapped in low-skill, low-pay jobs with no ben­e­fits or job se­cu­rity — what econ­o­mists term “pre­car­i­ous” work.

Given the only barely man­age­able per­sonal debt loads car­ried by this large por­tion of the U.S. pop­u­la­tion, a suc­ces­sion of even mod­est keyrate hikes by the Fed could in­deed re­duce con­sumer spend­ing enough to flat­line GDP growth or worse, mak­ing good on Rosen­berg’s warn­ing at a Or­lando sum­mit last week.

That a vast and grow­ing por­tion of work­ing-age Amer­i­cans are un­em­ploy­able in an in­creas­ingly au­to­mated econ­omy that Rosen­berg la­bels a “fourth In­dus­trial Rev­o­lu­tion” is a cri­sis to which scant heed is paid by main­stream U.S. econ­o­mists. Which makes Rosen­berg and kin­dred spir­its Robert Re­ich, Joseph Stiglitz and Paul Krug­man, who also study house­hold-in­come and labour-mar­ket con­di­tions more in­tently than the tax and im­mi­gra­tion pol­icy changes that pre­oc­cupy most econ­o­mists, the sa­vants to mon­i­tor. Zuckerberg for Con­gress? Mark Zuckerberg says he isn’t head- ed for a ca­reer in pol­i­tics, ru­mours to the con­trary.

But the Face­book Inc. co­founder’s lengthy mus­ings on pub­lic-pol­icy is­sues in Face­book post­ings sug­gests oth­er­wise.

So does the am­ply fi­nanced Chan Zuckerberg Ini­tia­tive, a fam­ily foun­da­tion co­founded by Zuckerberg, 33, and his wife, Priscilla Chan, that funds equal-op­por­tu­nity projects.

So do Zuckerberg’s an­nual leaves of ab­sence from Face­book to travel the U.S., meet­ing chil­dren in ju­ve­nile de­ten­tion, opi­oid ad­dicts, and once-proud fac­tory work­ers laid off by au­to­ma­tion.

Some of those con­tacts en­dure, like the un­doc­u­mented im­mi­grant stu­dent whom Zuckerberg is still men­tor­ing.

Zuckerberg’s com­mence­ment ad­dress at his Har­vard College alma mater last Thurs­day, stud­ded with pub­lic pol­icy pre­scrip­tions, also did noth­ing to squelch the spec­u­la­tion about a Zuckerberg in the pub­lic arena, though with a set of pro­gres­sive ideas per­haps bet­ter suited to Canada than the cur­rent po­lit­i­cal cli­mate of his home­land.

Zuckerberg fo­cused on so­cial­wel­fare is­sues, in­clud­ing the need for af­ford­able day­care; sub­si­dized life­time learn­ing and re­train­ing; fairer wealth dis­tri­bu­tion through tax re­form; and ex­per­i­ment­ing with a univer­sal ba­sic in­come, as On­tario is do­ing this year in three pi­lot projects.

“Let’s face it, there is some­thing wrong with our sys­tem when I can leave here (Har­vard) and make bil­lions of dol­lars in 10 years, while mil­lions of stu­dents can’t af­ford to pay off their loans, let alone start a busi­ness,” Zuckerberg told the freshly minted Har­vard grads.

“Giv­ing ev­ery­one the free­dom to pur­sue pur­pose isn’t free, of course. Peo­ple like me should pay for it. Many of you will do well and you should too.”

“Zuck” even talked about “a new so­cial con­tract” that his mil­len­nial gen­er­a­tion should cre­ate, re­fer­ring to a term coined in the 18th cen­tury.

A com­puter geek who knows his Jean-Jac­ques Rousseau — tough to fit on a lawn sign, but it would be in­ter­est­ing to see Zuck make a go of it. The short cir­cuit at Tesla Fara­day Future, the Gar­dena, Calif.based au­tomaker once billed as a “Tesla killer,” has about two months to raise $1 bil­lion (U.S.), or it will pass into mem­ory by late summer.

Fara­day lost its sole source of fi­nanc­ing when Chi­nese bil­lion­aire Jia Yeut­ing’s LeEco con­glom­er­ate ran out of cash last year.

When Fara­day buys the farm, watch for in­vestors to wake up to the ill-fated Fara­day-LeEco con­glom­er­ate’s sim­i­lar­ity to Tesla Inc.

This year, Tesla’s eye-pop­ping mar­ket cap of $54 bil­lion eclipsed that of Ford Mo­tor Co., Gen­eral Mo­tors Co., Honda Mo­tor Co. Ltd. and Nis­san Mo­tor Co. Ltd.

But last Novem­ber, Tesla co­founder Elon Musk made Tesla spend $2 bil­lion it couldn’t re­ally af­ford to buy Musk’s So­lar City, a chronic mon­ey­loser in the so­lar-panel busi­ness.

You can imag­ine a risk-re­sis­tant in­vestor tak­ing a chance on Tesla at its cur­rent price, but only if Tesla was a “pure play” in the future of au­tomak­ing.

In­stead, Tesla in­vestors are bet­ting on an au­tomaker that by now is only as zeal­ous in de­vel­op­ing trail-blaz­ing elec­tric ve­hi­cles (EVs) as Tesla’s en­trenched ri­vals, with their vastly greater mass-pro­duc­tion, fi­nanc­ing, mar­ket­ing and dis­tri­bu­tion prow­ess.

And into the mix, the Tesla in­vestor gets an in­staller of res­i­den­tial roof pan­els whose or­der book has been shrink­ing for years.

The end game for Tesla, which at best is ex­pected turn out less than 3 per cent the num­ber of ve­hi­cles that Ford does this year, is to be bought by one of the ma­jor au­tomak­ers.

So, the ques­tion: Would Volk­swa­gen AG or Toy­ota Mo­tor Corp. pay $54 bil­lion for Tesla, lock, stock and pa­tent trove, when for the same amount it could buy GM with­out So­lar City, whose “syn­ergy” with Tesla ex­ists mostly in Elon Musk’s head?


Face­book’s Mark Zuckerberg may have shown his hand when he talked pub­lic pol­icy dur­ing a com­mence­ment speech at Har­vard, David Olive writes.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.