There was never any question that the headlines in 2020 would be dominated by the presidential campaign. No one ever expected 2020 to be a year of “the economy, stupid!” Chairman Mao’s dictum “Put politics in command!” seems more to the point.
Writing those lines the morning after Iran’s missile strike on U.S. bases in Iraq, I cannot put out of my mind the way possible political twists could affect the economy. For months, analysts have pondered whether the announcement of a U.S.-China trade deal would raise economic spirits in 2020. Now we have the prospects of military conflict in the Middle East, perhaps with rising oil prices and patriotic fervor on all sides, to think about.
Prognosticating about the impact of political events on the economy seems both doomed to failure and thankless. Having acknowledged that politics will dominate this year, allow me to turn to the somewhat more tractable field of the state of the economy and its short-term prospects.
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In the second and third quarters of 2019, U.S. economic growth moved into a lower gear. Real GDP grew at just about 2 percent in both quarters, buoyed by steady growth in consumer spending. Increasingly, consumers have been isolated in pushing the economy forward; their only supporting partner has been government, but the push from the 2017 tax bill has largely run out of steam.
On the negative side, business investment in new equipment, factories and structures actually fell, while construction of homes and apartments grew feebly. Investment, the most volatile part of GDP, is the one that usually drives expansions and recessions. For example, the last recession was triggered by the collapse of home prices and the near-cessation of residential construction.
This 2 percent pace is reasonably healthy. With unemployment still very low and inflation a touch below the Federal Reserve’s 2 percent target, the economy is fairly healthy, as Federal Reserve Chairman Jerome Powell has repeatedly emphasized. Overall, wages are growing a bit faster, but not fast enough to create concerns about rising inflation.
The $64,000 question is whether all of this can last. The U.S. economy has officially been in an expansion for more than a decade, setting a post-World War II record for the longest expansion period. The word “roaring” will not come to anyone’s lips, but fans of slow and steady (go Tortoise!) will have a chance to make their point. The Fed’s two rate cuts in 2019 should provide support for interest-sensitive sectors of the economy, such as housing and consumer durables, as mortgages and car loans become a bit more attractive.
U.S. financial markets mainly seem to be thriving, especially the stock market. But there was a bit of a stir over “yield-curve inversion” in the fall, with one-year interest rates higher than the 10-year rates. In the past, this has been a leading indicator of a recession, reflecting expectations that economic activity would fall in the next year or two. But dramatic changes in the structure of the U.S. financial system, with banks losing much of their central role as deposit-takers to money market mutual funds and their central role as lenders to bond issuance and non-bank lenders, cast some doubt on the reliability of this signal.
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There are some pockets of stress in the financial markets, most of all increased signs of companies having difficulties repaying “leveraged loans,” a category of risky loans. So far, however, nothing more concrete has emerged, although caution requires me to note that financial risks are not always detected in advance.
Looking beyond the U.S., world economic growth has been slowing. The usually reserved International Monetary Fund used dramatic language when it said that “the outlook remains precarious” in its last World Economic Outlook published on October 15, with both Europe and Japan in a weak state. China’s GDP growth also seems to have slowed, partly from the effects of the trade war and partly from long-standing growth challenges.
Usually, U.S. recessions are made in America, not abroad. The weakness beyond our shores probably would not be enough to plunge the U.S. into recession. But if U.S. consumers do become more cautious, or a significant problem emerges in the financial sector, a recession could very well be on the horizon.
Often, economists speculate about “soft-landings” and continued expansion. Recessions tend to be global events these days, and they usually hit the major economies at more or less the same time. By professional training and personal disposition, I am a bit of a pessimist. I always expect that the next recession will hit us, my only question is when. 2020 might not be the year of the next recession, but then again, it might.
But what are the chances that we will even notice the economy above the din of political news?
Evan Kraft is the economist in residence for the economics department at American University. He served as director of the Research Department and adviser to the governor of the Croatian National Bank.
Opinion: Brad West been one of the sharpest critics of decriminalization
Published Apr 22, 2024 • Last updated 2 hours ago • 4 minute read
VICTORIA — Port Coquitlam Mayor Brad West fired off a letter to Premier David Eby last week about Allan Schoenborn, the child killer who changed his name in a bid for anonymity.
“It is completely beyond the pale that individuals like Schoenborn have the ability to legally change their name in an attempt to disassociate themselves from their horrific crimes and to evade the public,” wrote West.
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The Alberta government has legislated against dangerous, long-term and high risk offenders who seek to change their names to escape public scrutiny.
“I urge your government to pass similar legislation as a high priority to ensure the safety of British Columbians,” West wrote the premier.
The B.C. Review Board has granted Schoenborn overnight, unescorted leave for up to 28 days, and he spent some of that time in Port Coquitlam, according to West.
This despite the board being notified that “in the last two years there have been 15 reported incidents where Schoenborn demonstrated aggressive behaviour.”
“It is absolutely unacceptable that an individual who has committed such heinous crimes, and continues to demonstrate this type of behaviour, is able to roam the community unescorted.”
Understandably, those details alarmed PoCo residents.
But the letter is also an example of the outspoken mayor’s penchant for to-the-point pronouncements on provincewide concerns.
He’s been one of the sharpest critics of decriminalization.
His most recent blast followed the news that the New Democrats were appointing a task force to advise on ways to curb the use of illicit drugs and the spread of weapons in provincial hospitals.
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“Where the hell is the common sense here?” West told Mike Smyth on CKNW recently. “This has just gone way too far. And to have a task force to figure out what to do — it’s obvious what we need to do.
“In a hospital, there’s no weapons and you can’t smoke crack or fentanyl or any other drugs. There you go. Just saved God knows how much money and probably at least six months of dithering.”
He had a pithy comment on the government’s excessive reliance on outside consultants like MNP to process grants for clean energy and other programs.
“If ever there was a place to find savings that could be redirected to actually delivering core public services, it is government contracts to consultants like MNP,” wrote West.
He’s also broken with the Eby government on the carbon tax.
“The NDP once opposed the carbon tax because, by its very design, it is punishing to working people,” wrote West in a social media posting.
“The whole point of the tax is to make gas MORE expensive so people don’t use it. But instead of being honest about that, advocates rely on flimsy rebate BS. It is hard to find someone who thinks they are getting more dollars back in rebates than they are paying in carbon tax on gas, home heat, etc.”
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West has a history with the NDP. He was a political staffer and campaign worker with Mike Farnworth, the longtime NDP MLA for Port Coquitlam and now minister of public safety.
When West showed up at the legislature recently, Farnworth introduced him to the house as “the best mayor in Canada” and endorsed him as his successor: “I hope at some time he follows in my footsteps and takes over when I decide to retire — which is not just yet,” added Farnworth who is running this year for what would be his eighth term.
Other political players have their eye on West as a future prospect as well.
Several parties have invited him to run in the next federal election. He turned them all down.
Lately there has also been an effort to recruit him to lead a unified Opposition party against Premier David Eby in this year’s provincial election.
I gather the advocates have some opinion polling to back them up and a scenario that would see B.C. United and the Conservatives make way (!) for a party to be named later.
Such flights of fancy are commonplace in B.C. when the NDP is poised to win against a divided Opposition.
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By going after West, the advocates pay a compliment to his record as mayor (low property taxes and a fix-every-pothole work ethic) and his populist stands on public safety, carbon taxation and other provincial issues.
The outreach to a small city mayor who has never run provincially also says something about the perceived weaknesses of the alternatives to Eby.
“It is humbling,” West said Monday when I asked his reaction to the overtures.
But he is a young father with two boys, aged three and seven. The mayor was 10 when he lost his own dad and he believes that if he sought provincial political leadership now, “I would not be the type of dad I want to be.”
When West ran for re-election — unopposed — in 2022, he promised to serve out the full four years as mayor.
He is poised to keep his word, confident that if the overtures to run provincially are serious, they will still be there when his term is up.
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LIVE Q&A WITH B.C. PREMIER DAVID EBY: Join us April 23 at 3:30 p.m. when we will sit down with B.C. Premier David Eby for a special edition of Conversations Live. The premier will answer our questions — and yours — about a range of topics, including housing, drug decriminalization, transportation, the economy, crime and carbon taxes. Click HERE to get a link to the livestream emailed to your inbox.
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