August 18, 2018
Yes, it is yet another story of the big one is on its way. This time it’s from George Will.
Will rightly mocks Donald Trump’s boast that the 4.1 percent growth in the second quarter was extraordinary. Following Nobel laureate Robert Shiller, Will tells readers:
“…since quarterly gross domestic product enumeration began in 1947, there have been 101 quarters with growth at least equal to the 4.1 percent of this year’s second quarter. The fastest — 13.4 percent — was 1950’s fourth quarter, perhaps produced largely by bad news: The Cold War was on, the Korean War had begun in June, and fear of the atomic bomb was rising (New York City installed its first air-raid siren in October), as was (consequently) a home-building boom outside cities and ‘scare buying’ of products that might become scarce during World War III. Today, Shiller says, ‘it seems likely that people in many countries may be accelerating their purchases — of soybeans, steel and many other commodities — fearing future government intervention in the form of a trade war.’ And fearing the probable: higher interest rates.”
Hate to spoil the fun, but actually the fastest quarter of growth since 1947 was in the second quarter of 1978 when the economy grew at a 16.4 percent annual rate. I don’t recall any imminent threats of nuclear war or other really bad things at the time that could spur this growth. The fact that the second quarter figure for this year was somewhat of an aberration is likely true, but people are spending some of the tax cut. (Yes, it mostly went to the rich. But they know how to spend money also, even if they spend a smaller share of the tax cut than middle- or lower-income families.)
The more general point in Will’s piece is that the recovery has gone on for a long time and we will have another recession. These are valid points, but nothing he says in the piece provides evidence for an “epic economic collapse.”
He seems to think the high debt and deficits will somehow make the next recession especially bad but doesn’t connect any dots. There may be political obstacles to spending the money needed to boost the economy out of a recession, but that would just be the result of Republicans trying to make a Democratic president suffer politically for a bad economy. This would be the case even if the national debt was zero.
In terms of the economics, Japan has a debt-to-GDP ratio that is nearly twice as large as the US ratio and can still borrow long-term at near zero cost and has an inflation rate of less than 1.0 percent. So we get that people like George Will might be aesthetically opposed to government debt, but there is no economic reason for us to think that we will not be able to spend the money needed to boost the economy out of the next recession.
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