Poor Economic Growth Ahead?

Popular Economics Weekly

First-Quarter GDP Growth Estimate Decreased “On April 7, the GDPNow model estimate for real GDP growth in the first quarter of 2026 is 1.3 percent, down from 1.6 percent on April 2.”

AtlantaFed

More warnings of slowing economic growth are appearing. And now we have a Gulf War that makes predictions more unpredictable. Who knows what’s to come?

The Atlanta Federal Reserve’s GDPNow estimate of first quarter (Q1) 2026 economic growth that is widely followed by economists has plunged from its high of 3 percent, where it had been sitting since January 2026, to 1.3 percent in the latest revision.

Why the surprise drop, since fourth quarter 2025 GDP growth had already plunged from 1.4 percent to 0.7 percent in its latest revision?

Much higher GDP growth in Q2 and Q3 last year showed that financial markets were buying the Trump message that American taxpayers and businesses would start spending more from the Big Beautiful Tax Bill write-offs this spring.

The latest retail sales and a good March unemployment report (+178,000 jobs) had kept up optimism for a better year. There were also hopes that increased business investments—another component of GDP—would create more jobs.

But in fact the opposite is happening. Most business investment is being spent on AI energy centers, which is causing more joblessness, with wholesale job layoffs being announced as a consequence—at the likes of Amazon, which has announced a total of 30,000 job cuts to date.

And we are seeing imports continuing to flood in, far out distancing exports, which increases the trade deficit and brings down our Gross Domestic Product growth, since GDP measures only what is produced or sold in the U.S.

The Wall Street Journal survey says that on average, economists forecast gross domestic product adjusted for inflation to grow 2.1% in the fourth quarter this year from a year earlier. That was down incrementally from 2.2% in January. They expect the unemployment rate will be 4.5% in December, matching their forecast in January, before the war. Last month the unemployment rate was 4.4%.

Economic Growth is difficult to forecast; economists will tell you. And the Atlanta Federal Reserve is one of the few that dare to do it. We don’t even have the final fourth Quarter 2025 revision yet, which has shrunk steadily as I said after a much better looking Q3 of +4.4 percent GDP growth.

Besides job, trade deficit, and business investment data, the GDP includes consumer spending. That number hasn’t faltered as badly. So we should be looking at consumer behavior if we want to know what happens next.

I said last week that retail sales picked up in March, so consumers are shopping again and consumer confidence edged up as well.

There is something else that could improve consumers’ attitudes and hence GDP. Lower inflation would increase the demand for goods and services—but how to achieve it with $4 per gallon gas prices for who knows how long? Lower inflation is possible with AI efficiencies increasing labor productivity and lowering product costs. But it takes time, years, as with past technological innovations.

The just-announced two-week ceasefire could certainly bring down oil and gas prices, if it holds, and Trump will want it to hold given its unpopularity.

The Federal Reserve is hinting it could go up or down on their interest rate decisions this year. But if the labor market continues to shrink the Fed will also want lower interest rates ahead. And any easing of credit conditions (lower cost of borrowing) would be good news for economic growth this year.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Inflation Is Contagious

 Popular Economics Weekly

“From the preceding month, the PCE price index for December increased 0.4 percent. Excluding food and energy, the PCE price index also increased 0.4 percent.

From the same month one year ago, the PCE price index for December increased 2.9 percent. Excluding food and energy, the PCE price index increased 3.0 percent from one year ago.” BEA.gov

FREDpceindex

The inflation contagion is preceding unabated, per the FRED graph of the Personal Consumption Expenditure Index, the favored Federal Reserve inflation indicator.

Why? Because little to nothing has been done about inflation, although that may change with the Supreme Court’s decision to outlaw Trump’s executive orders allowing retaliatory tariffs. The evidence is that tariffs have raised prices and done nothing to lower the trade deficit that Trump has railed about, per Paul Krugman’s Substack blog.

Paul Krugman

The Fed uses the PCE index because it most broadly measures the change in goods and services prices of goods consumed “by all households, and nonprofit institutions serving households”, says the Bureau of Labor Statistics (BLS).

It is a virus-like contagion indicator because consumers can’t do much about it over the short term other than shop for more bargains. It’s caused by product shortages and Trump’s tariffs, disruptions due to Trump’s continuous changes to tariffs that percolate through the general economy.

The FRED above graph also shows that President Biden had already brought PCE inflation down to 3% in October 2023. It has remained there ever since, only beginning to creep up after Trump’s April 2025 Liberation Day tariff announcements.

And it continues its creep, which will make the Fed’s decision about when to lower interest rates more difficult. Consumers are also becoming increasingly anxious about inflation.

And minutes of the Federal Reserve’s first meeting of the new year showed that several officials wanted the central bank to report there was a chance its next move might be to raise interest rates because of the stubborn inflation data.

The Conference Board’s Confidence Index also measures such attitudes: “Consumers’ write-in responses on factors affecting the economy continued to skew towards pessimism. Comments about prices, inflation, and the cost of goods remained at the top of consumer’s minds.”

Why is inflation so contagious, to use the virus analogy? Because price changes are connected, they ‘infect’ each other as every consumer and business knows. For instance a rise in import prices raises the price of the final product, whatever it is.

Economists call the phenomenon inflation expectations. Research has shown if businesses expect high inflation, they may raise prices immediately; if workers expect it, they will demand higher wages, creating a self-fulfilling prophecy.

It’s all about attempting to predict future behavior, in other words. Consumer confidence surveys, such as the Conference Board’s Consumer Confidence Index attempt to measure inflation expectations, for instance:

“Consumers’ average and median 12-month inflation expectations were little changed but remained elevated. Consumers also believed that interest rates will persist at higher levels over the next 12 months.

The good news is that even Independent voters are seeing through the propaganda and blatant lies that lay behind President Trump’s “Day One” promises.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Is U.S. Growth Slowing?

 Financial FAQs

“Real gross domestic product (GDP) increased at an annual rate of 1.4 percent in the fourth quarter of 2025 (October, November, and December), according to the advance estimate released today by the U.S. Bureau of Economic Analysis. In the third quarter, real GDP increased 4.4 percent.” BEA.gov

 

BEAgdp

The economic chaos that President Trump has sown by using the tariffs as a tool to coerce trading partners is a major cause of the sudden drop in fourth quarter (Q4) GDP growth from Q2 and Q3 growth (see graph).

So it’s great news the Supreme Court ruling that most of President Trump’s tariffs by executive order are illegal. It will create more certainty over the instability that has bedeviled consumers and businesses alike, which encourages future economic growth.

It’s also a huge victory for the rule of law over a president who routinely disobeys the law since only congress has the power to tax.

Businesses had rushed to counter the chaos created by the tariffs by stockpiling imports before Trump announced more tariffs. And import costs are subtracted from export prices to calculate GDP (Because imported goods aren’t produced domestically.), So higher imports, when all else is equal, tends to slow GDP growth, which measures what is produced domestically.

The furlough of hundreds of thousands of workers without pay during the 43-day government shutdown also slowed consumer spending that had already been affected by the tariff uncertainty.

So we are now beginning to see the damage Trump’s imagined cure for our trade deficits has done. He said other countries should have to eat the higher import costs from the tariffs but they passed on most of the higher costs.

Rump’s tariffs didn’t correct the trade imbalance between imports and exports either because importers then found ways to time their purchases between price swings and/or transfer their business to other countries that had lower tariffs.

In fact, the trade deficit—created by the amount imports exceeded exports— barely changed after all Trump’s planned chaos. It was $901 billion in 2025 vs. $903 billion in 2024.

“Had Congress intended to convey the distinct and extraordinary power to impose tariffs, it would have done so expressly, as it consistently has in other tariff statutes,” said the Supreme Court opinion, which was supported by a 6-3 majority of the court. Justices Samuel Alito, Brett Kavanaugh and Clarence Thomas dissented.

In other words, President Trump can no longer govern by creating the chaos and uncertainty that has enabled him to accumulate so much power and wealth. So maybe “The times they are a changin?”

And sowing economic chaos by being unpredictable doesn’t work as a negotiating tactic either. Companies usually waited until Trump’s TACO bluster caused him to back down before agreeing to a rate. And SCOTUS ruled he now must do the research required by other laws to justify the tariffs.

Trump’s tariffs did not decrease the flow of imports or boost domestic manufacturing, as intended. Domestic manufacturing lost another 80,000 jobs last year, in large part because of the higher steel and aluminum prices that go into so much manufacturing output.

And the mostly illegal tariffs worsened inflation as well. A New York Fed bank study found U.S. businesses and consumers have paid most of the costs of the price increases on imported goods.

“Over the course of 2025, the average tariff rate on U.S. imports increased from 2.6 to 13 percent. In this blog post, we ask how much of the tariffs were paid by the U.S., using import data through November 2025. We find that nearly 90 percent of the tariffs’ economic burden fell on U.S. firms and consumers” per the NY Federal Reserve.

The harm done by Trump’s tariffs by fiat makes a long list. China had stopped buying agricultural products as in Trump’s first term and higher tariffs have cost Ford and GM $billions in lost profits.

The Supreme Court ruling exposed the harm ignoring laws and our constitution has done to economic growth. Trump’s Republicans are no longer the party that stands for lower taxes, except among their wealthiest supporters. So much for increasing affordability!

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Trade Protectionism = Recession?

Popular Economics Weekly

FRED

BEIJING (AP) — China’s government has threatened unspecified “necessary countermeasures” if Trump’s planned tariff hike goes ahead said the AP. And it followed up the threat by devaluing their Yuan by more than 7 percent against the dollar, say news reports.

President Trump Thursday had suddenly tweeted that he would levy a 10 percent tariff on $300 million of Chinese imports last week, after what he perceived to be Chinese backtracking on their good faith efforts to negotiate. It completely unsettled financial markets, causing the DOW to plunge more than 600 points Friday and almost 1,000 points today from a rally spurred by the Federal Reserve rate cut on Wednesday, and today’s counterpunch by the Chinese—though some commentators remarked that investors should have seen it coming.

The beefed-up tariffs on Chinese imports add to an existing 25 percent tax Trump has already placed on Chinese goods. As the New York Times notes, the United States is now “taxing nearly everything China sends to the United States, from iPhones to New Balance sneakers to children’s books.”

Republicans and Trump seem to have a bad case of historical amnesia. Historians generally agree it was the Smoot-Hawley Tariff Act of 1930 that helped to precipitate the Great Depression. The US lost some 50 percent of its foreign trade as a result. Other governments reciprocated with higher tariffs, just as the China is doing with Midwest farmers, and now devaluation that makes their exports cheaper. They are also threatening to ban the export of rare earth minerals used in high-tech manufacturing components, of which China is the world’s major supplier.

China’s Commerce Ministry said Trump’s announcement is a violation of his agreement with President Xi Jinping in June to revive negotiations aimed at ending their fight over Beijing’s trade surplus and technology ambitions. The ministry had earlier said if the U.S. measures took effect, “China will have to take necessary countermeasures to resolutely defend its core interests.”

What is really happening between the lines? One Chinese minister posited that China had slowed negotiations for any meaningful trade agreement to a crawl until after the 2020 election, when it will know with more certainty who to deal with over the longer term.

Whereas President Trump sudden announcement must mean he is trying to divert media attention away from his other problems. To name a few: Trump hadn’t vetted Republican Congressman Daniel Radcliffe, who had to withdraw from consideration for the CIA Chief after it was obvious he wasn’t’ qualified for the job; Senate Majority Leader “Moscow Mitch” McConnell is drawing fire from all sides for refusing to allow a Senate bill to come to the floor that protects upcoming elections from foreign interference; and lastly, all signs are pointing to a gradually slowing economy precisely because of the ongoing trade war.

It is not a pretty picture, but empty bluster and posturing rarely is. We now have the makings of a currency devaluation war, says former Fed Vice Chair Alan Blinder, when other countries may now want to also devaluate their currencies. Such a result could lead to plummeting commodity prices worldwide, and what else…?

The Chinese know the clock is ticking on the Trump administration and Republicans who continue to blindly support him, when congress is by law the real maker or breaker of trade agreements. Who will step up that actually knows the “Art of the Deal?”

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Are Trade Wars So Damaging?

Popular Economics Weekly

Why cannot the Trump administration make $1 + $1 = $2? It’s obvious to all major economists and anyone with basic arithmetic skills that foreign tariffs not only raise the prices of those imports to US, which lowers the demand for those products, but also causes the affected countries to counter by raising their tariffs, which reduces the demand for American products sold to them. It may also reduce US employment in those sectors, though the jury is still out on how it affects US employment.

Suffice to say that attempting to change incredibly complex balance of trade policies between countries that depend on each other for parts as well as finished products takes real negotiating skills, rather than bullying tactics in one-on-one confrontations and unilateral withdrawals from existing trade agreements, which could very well slow growth enough to cause a mild recession—or worse.

In 2018, for instance, the country's trade gap widened to a 10-year high, with the goods gap with China jumping to a record high despite tariffs on USD 250 billion worth of Chinese imports in the first year of Trump’s attempts to reorder the perceived trade imbalance.

The effects of fighting with friends as well as foes is already evident in the Boeing 737-Max 8 fiasco, in which allies chose to ban its flights even before analyzing the Black Boxes. And the ballooning trade deficit after one year of these trade wars is other evidence that allies are as willing to retaliate with tariffs, as foes.

“In the first two volleys of U.S. tariffs on China, which covered $50 billion worth of imports, only $1 billion were products where China had a dominant market position, according to a calculation by Deutsche Bank AG,” said Bloomberg’s Peter Coy, “In the latest round, which took effect on Sept. 24, American consumers are more vulnerable to price increases: Almost half of the $200 billion worth of products subject to the 10 percent duties come mainly from China. Things will get even worse for consumers if Trump makes good on his threat to place tariffs on the rest of Chinese imports, because for about 80 percent of the products, China is the majority supplier.”

And Harley-Davidson is transferring manufacturing to the EU of motorcycles sold in Europe, because of EU retaliatory tariffs on its US-manufactured Harleys. And now GM is also announcing some 14,000 layoffs in five US plants because it can produce its cheaper cars, such as the Chevy, overseas.

Why? Ask GM CEO Mary Barra. Trump’s tariffs on steel and aluminum have cost Ford and GM about $1 billion each. GM Chief Executive Officer Mary Barra cited the tariffs in November when she announced the 14,000 job cuts that included the Lordstown plant’s shuttering. Potentially making things even worse, Trump is now weighing new tariffs on foreign automobiles that could threaten hundreds of thousands of additional U.S. jobs.

So the fact tariffs that target trading allies as well as adversaries has only increased the trade deficit is not a sign that such a policy is working, especially with China that Trump has chosen as the poster boy of unfairness.

Tradingeconomics.com

What is most shocking is the continuing decline of the US monthly trade balance (in above graph), though only partly due to the trade wars, since American consumers flush with case have widened the deficit by continuing to buy more imports than we export. But it could get worse if Trump continues to raise tariffs on China, in particular.

Labor think tank Economic Policy Institute (EPI) reports the U.S. goods trade deficit with China reached a new record of $419.2 billion in 2018, up from $375.6 billion in 2017, an increase of $43.6 billion (11.6 percent). United States trade with China is dominated by the deficit in manufactured products.

“Although the United States has imposed tariffs of 10 to 25 percent on $250 billion in imports from China (about half of total U.S. imports from that country),” says EPI, “China has played its ‘ace-in-the-hole’ by allowing it’s currency to fall by roughly 10 percent against the dollar. As a result, the U.S. trade deficit with China increased faster (11.6 percent) than the U.S. deficit with the world as a whole (10.4 percent).”

This is not bringing more jobs back to the US. In fact, studies are beginning to show a neutral to net loss of jobs from the tariffs, as sales lost through increased production costs from tariffs hasn’t yet been offset by promised jobs created from industries bringing jobs back to the US that haven’t yet materialized.

The IMF predicts that the U.S. current account deficit—the broadest measure of U.S. trade in goods, services, and income—will nearly double between 2016 and 2022. Unless these trends are offset by a rapid decline in the value of the U.S. dollar, rapidly rising trade deficits could be devastating for U.S. manufacturing, likely giving rise to massive job loss on the scale experienced in the 2000–2007 period, when 3.5 million U.S. manufacturing jobs were lost.

$1 + $1 doesn’t = $2 when there is no rhyme or reason for such tariffs without a well thought out plan to achieve results. Negotiating with confusion rather than clarity can only mean an uncertain trading future, which increases the certainty of a recession.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

US Manufacturing Leads 2018 Growth For How Along?

Popular Economics Weekly

Graph: Econoday

US manufacturing looks to lead US economic activity this year. Why? Durable goods orders are growing incredibly fast, which are any products that last more than 3 years. This means aircraft and military goods orders, as well as appliances and other household items.

The blue columns of the graph track monthly order totals for durable goods which came in at $247.7 billion in February for a jump of 3.1 percent compared with January. The green line tracks shipments of durables which totaled $249.7 billion for a 0.9 percent increase which is sizable for this measure.

A subset of these factory orders are core capital goods, which boost labor productivity (meaning goods produced per worker hour) that has been lagging for years. Capital goods get the most attention as demand for these, from machinery to computers points to increasing fixed investment as businesses put new equipment in place to meet what they expect will be rising demand ahead.

Much of the strength comes from core capital goods orders (i.e., nondefense ex-aircraft that boost manufacturing productivity) where year-on-year growth, moved up nearly 2 percentage points to 8.0 percent, says Econoday. One caveat is that orders for primary metals surged a monthly 2.7 percent in a gain that may reflect, based on reports from regional and private surveys, rising prices for steel and aluminum.

 
That is a sign that the ongoing tariff negotiations mean rising prices for manufactured and consumer goods. Let’s not forget that most of the world’s trade agreements are centered on reducing prices by locating production of these goods where they are most cheaply produced—an economic concept called comparative advantage. Adding tariffs only adds to their costs, and American consumers with their limited incomes will suffer, as we import most of our consumer products.

But Americans working in industries that use steel and aluminum products will also be affected by rising prices, which has to reduce demand for their products, as well.

It's worth noting that these prices were already climbing ahead of possible steel and aluminum tariffs announced earlier this month. Fabrication orders rose 0.8 percent in February with machinery, which is at the very heart of the capital-goods group, rising 1.6 percent.

So it seems the cost of equalizing our trade agreements will on balance do little to correct our trade imbalance, because as products become more expensive they reduce demand for those products. That is, unless the salaries of US workers and consumers increase at the same rate. But then aren’t we back to the feared wage-and-price spirals of the 1970s that caused record inflation, and caused the Fed to raise interest rates to record levels in the 1980s?

The Fed might do the same if it sees such inflation in the cards again.  The way to increase demand for anything is to lower their costs, not raise them, which our current low-tariff trade agreements have been doing.

Harlan Green © 2018

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A Gangbuster Employment Report

Popular Economics Weekly

The U.S. added 313,000 new jobs in February, the biggest gain in a year and a half and clear evidence that a strong economy has plenty of room to keep expanding, said Marketwatch. The unemployment rate of 4.1 percent remained at a 17-year low.

And despite the big increase in hiring, wage growth did not keep up. Hourly pay rose 4 cents to $26.75 an hour, but the yearly increase in wages tapered off. The 12-month increase in pay slipped to 2.6 percent from a revised 2.8 percent in January.
 

Graph: Marketwatch

Construction companies hired 61,000 people to mark the biggest increase in 11 years. Retailers added 50,000 jobs, as did professional-oriented businesses. And manufacturers filled 31,000 positions. Workers also put more time in on the job, reversing a weather-induced decline in the first month of the year.

What’s more, the economy added 54,000 more jobs in January and December than previously reported. Altogether, the economy has gained an average of 242,000 new jobs in the past three months. That’s much stronger than the 182,000 monthly average in 2017.

Hourly pay is still not rising fast enough to cause inflation. We have to watch the 10-year T Bill for any signs of future inflation. Its yield is still below 3 percent, so the Fed might not raise their rate as quickly. The Chicago Fed’s Charles Evans just suggested the Fed could wait until mid-year before hiking short term rates.

But effects of the steel and aluminum tariff hikes will be the big unknown for inflation. If this initiates a trade war with the EU and China, in particular, all bets are off for continued high growth as rising primary metal prices will boost inflation with a vengeance, and endanger the jobs of those 6 million workers that make products from those metals.

Graph: Marketwatch

There is also a problem with our national savings rate. Marketwatch’s Rex Nutting points out it has sunk to a post-WWII low, which means more foreign investment than ever is needed to fund our balance of payments problem; something better trade agreements won’t cure. Because Americans still like to import more consumer goods than they export manufacturing goods and services, as I said yesterday.

Consumer products and automobiles are the primary drivers of the current $566 billion trade deficit. In 2017, the United States imported $602 billion in generic drugs, televisions, clothing, and other household items. It only exported $198 billion of consumer goods. The imbalance added $404 billion to the deficit. America imported $359 billion worth of automobiles and parts, while only exporting $158 billion.

So there are many caveats to continued strong jobs growth in 2018. Firstly we can’t have a trade war, and secondly, foreign investors still must buy enough US stocks, bonds, and Treasury securities to keep long term interest rates stable.

Harlan Green © 2018

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How Bad Is Our Trade Deficit?

Financial FAQs

President Trump just announced a 25 percent tariff (tax) on imported steel, and 10 percent tariff on aluminum. Will this improve our 2017 $566 billion trade deficit? Can we lower our trade deficit with higher tariffs on such strategic products? Is the deficit so dangerous to our economic health that we have to lower it in this way?

No, because most of the trade deficit comes from US consumers’ love of imported goods--$54.3 billion in January, according to Econoday. In 2017, the total U.S. trade deficit was $566 billion. It imported $2.895 trillion of goods and services while exporting $2.329 trillion.

Graph: Econoday

Whereas the trade gap in primary metals is minuscule. This gap totaled $3.8 billion in the latest data for this reading which is November. Econoday says, “But here it's important to note that this deficit isn't only one way. U.S. firms actually exported a very sizable $4.0 billion in primary metals to foreign buyers in the month as tracked in the blue columns of the graph, a sum that could be at risk should a trade battle for metals begin to open up. What the administration is of course aiming to reduce is the graph's red columns, the roughly $8 billion in monthly imports of primary metals.”

Consumer products and automobiles are the primary drivers of the trade deficit, according to TheBalance.com, a personal finance website. In 2017, the United States imported $602 billion in generic drugs, televisions, clothing, and other household items. It only exported $198 billion of consumer goods. The imbalance added $404 billion to the deficit. America imported $359 billion worth of automobiles and parts, while only exporting $158 billion.

That added $201 billion to the deficit. So why is President Trump picking on the more strategically important primary metals so necessary for our defense and other manufacturing products, like automobiles that use steel and aluminum products and employ more than 6 million workers?

We should be taxing those imported consumer goods, or automobiles to bring down the trade deficit. But Americans love their cheaper imported consumer goods and automobiles.

Harlan Green © 2018

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Q4 Growth Misses 3 Percent

Popular Economics Weekly

Consumers and businesses powered the economy to a 2.6 percent rate of gross domestic product growth in the final three months of 2017, according to the Commerce Department. But declining inventories and a wider trade deficit kept the U.S. from hitting the 3 percent mark for the third quarter in a row for the first time in 13 years. 

Graph: BEA

Q4 growth did not reach 3 percent as many pundits had hoped because producers produced less, depleting inventories. And imports grew faster than exports, because consumers are buying more, as more consumers are working in this full employment economy. Both numbers subtract from GDP growth, however.

On the plus side, consumer spending accelerated to a 3.8 percent annual pace of growth, the fastest pace in almost two years. Americans spent more on new cars and trucks, clothing and health care, among other things.

Businesses also invested more, after a long drought in capital expenditures. They increased spending on equipment by 11.4 percent, while investment in new housing jumped 11.6 percent. Inventories fell because companies slowed production in the fourth quarter. The value of unsold goods, or inventories, fell by $29.3 billion.

Imports rose 13.9 percent, while exports grew just 6.9 percent, and imports subtract from growth. That cut 1.1 percentage points off fourth-quarter GDP, and there is still very little inflation. The annual rate of inflation, measured by the PCE index is climbing; it rose to 2.8 percent, the highest pace since 2011. But the core PCE without more volatile food and energy prices rose at a slower 1.9 percent clip.

What does this mean? There is more room to grow, if consumers continue to spend as they have been, and businesses continue to invest in new plants and equipment, as they have in 2017, because more investment will increase worker productivity.

And economic growth needs higher productivity plus a growing population. Yet developed countries such as the US have slowing population growth, so robots, AI and other tech innovations have to replace the declining worker population. Republicans’ tax cuts should aid the corporate investment in more robots, which is good. But their wish to cut government spending is bad, because government is historically a 20 percent contributor to economic activity—and growth.

That’s because governments maintain our roads, bridges, energy grid, educational system, clean air and water; R&D for space exploration, Internet and airports—the list goes on and on. And government expenditures have been reduced since 2011, due to misplaced austerity measures in the US and Europe in particular.

This is a major reason GDP growth both here and in Europe has averaged just 2 percent since the end of the Great Recession. Corporations have garnered record profits over this time, but hoarded those profits, or returned them to their CEOs and stockholders, but not their employees.

That has to change for real economic growth to continue. Raising minimum wages in some states will help, but lower taxes don’t help with such a huge national debt and another $1.5 trillion being added over ten years in the new tax bill. Real wage growth has been declining for years, as collective bargaining and workers’ rights have been curtailed in the name of greater corporate profits.
We can hope GDP growth will continue, if paying down the national debt doesn’t become a priority.

The US dollar’s value has already declined 10 percent against other currencies, and the reason is not clear. But any further decline could motivate other countries to decide that investment in the US may not be a good idea; since much of our national debt is financed by other countries.

It is not a good idea to ignore what could happen to the $trillions in Treasury securities we have sold to the Chinese, in particular, that have financed that debt. Because it could suddenly become much more expensive to finance, should foreign governments and private entities no longer have confidence in the US economy.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen