This just in: Yesterday, the GDP was reported at 4% which is a very high number. It reflects how strong our economy was last quarter. I think it’s fine to celebrate, however, I’m thinking this is going to be short-lived.
Here is why…
First: Growth depends on productivity. A major part of productivity is labor. The United States is out of labor. Once we dropped below 5% unemployment, everyone that wants a job has a job. I work with companies that are outgrowing their current capacities. For the last couple of years, the one thing that is holding them back is the lack of available labor. This is a very real thing.
We have some solutions to this. We can stop deporting so much labor. We can allow more labor to immigrate. We can invest in automation. We are doing the exact opposite of the first two and the third one is a long term fix in that it won’t help us out in the near term.
Second: Our deficit is out of control. Yes, if we grow at 5% we may be able to slow this somewhat, however, this is extremely unlikely. We are paying more and more interest as we borrow more and more money. Why are we borrowing so much? Did we increase spending? No, we decreased income by cutting taxes. We can feel like we have more money when we cut taxes but what we are really doing is borrowing more money so we feel richer.
Third: Inflation is starting to go up. Interest rates are also going up as the FED tries to put a lid on inflation. Inflation makes our dollars less valuable and higher interest makes products (like housing) more expensive. In short, we are becoming poorer without changing the amount of money we are holding.
Fourth: Tariffs are creating a global trade war. All you need to know about tariffs is that they raise the prices of things you buy. If you want a Toyota and we put a 25% tariff on Toyotas, then that car will cost you 25% more.
Fifth: Housing is unaffordable. When this happens, no one is buying a house. Hosing construction contributes to the GDP. When people have a house, they buy big ticket items like sofas and ovens. When they don’t buy houses, they don’t buy these other things as well.
Sixth: Wages are oddly stagnant. Typically, coming out of a recession, wages lag by a few months. This means once the economy gets going again, wages eventually go up. We came out of a recession 9 years ago and yet, wages are still stagnant. Keep in mind, the middle class makes up 2/3 of our economy. When they have less buying power, the economy slows down.
So there you have it. I really, really hope that I’m wrong. I want a chicken in every pot.
But I’m not.
Those that disagree with me simply because we just had a 4% GDP growth rate are the same people that look out the window and say, “There is no Global Warming because it’s cloudy outside right now.”
Time to save the world.
Up, up and away…