Our economic situation cannot solely be blamed on the supply and demand repercussions of Covid-19, the Russo-Ukrainian War, China, heightened corporate greed, or the government’s policy response to any these. Nor is the issue settled if we suggest that the problem is an intricate combination of each of these factors.
It has been a while, but does anyone remember what it was like, economically, in 2019? I know we were caught up with getting the orange man out of office on socio-cultural grounds, but it would have been just as wise to vote him out for his economic record.
The Federal Reserve, for their part, was pretty explicit about financial-economic conditions in late 2019. Of course, nobody outside of the “finance bros” sphere really listens to the Federal Reserve unless there is a highly publicized crisis that they’re called upon to save us from.
In any case, the Reserve told us in early September 2019 that the economy was in downward trajectory. They had this outlook even before a September 16-18 interbank short-term funding crisis spiced financial conditions up even further.
In particular, their data showed that despite moderate GDP growth in the U.S., general “business investment and exports weakened amid falling manufacturing output.” More specifically, “fixed investment [in productive/technological infrastructure] posted a modest decline in the second quarter, and recent indicators point to continued softness.”
So, the Fed saw in 2019 that domestic production was generally down, as were investments to expand or optimize production. What was their solution? To lower interest rates again, of course.
The slowed economic activity paired with volatility in financial markets spurred an indefinite round of quantitative easing, with the Fed creating and pumping hundreds of billions into the banking system via bond markets.
They justified this on grounds that the money would ideally solve both the funding pressures in financial markets and growth problems, providing cheap trickle-down credit for enterprise/production. Debt-driven growth policy, at its finest.
Pre-Covid, the Fed was already willing to take risks to hold back an economic downturn, operating under a policy state of exception. They lowered interest rates in September 2019 at a scale two times as large as their standard cut (or hike), and they established a “temporary” overnight funding facility that would, in time, become institutionalized/permanent.
The world’s most powerful central bank, the U.S. Federal Reserve, prides itself on its “apolitical” or “non-ideological” character, determining monetary policy through a “purely technical” approach. After neo-liberal economists effectively argued – in postmodern fashion – that the study of economics eschews totality, central banks have largely backed off on claiming to practice science. But this hasn’t stopped them from constructing an identity as outsiders to the political system who have been appointed for their expertise.
To be fair, The White House wouldn’t be so foolish as to justify their decisions on grounds that are anything other than rational. Yet, there remains a legitimate difference in the political-legal status of these state institutions. For instance, the White House is wholly formed by the president and their team. The Federal Reserve has a much more technocratic nature.
Our elected president appoints the chair of the Fed, sure, but an entire Federal Reserve system exists in the background, with technologies and apparatuses deeply entrenched in a co-dependent relationship with the broader financial system. It remains more-or-less intact across presidential administrations, facilities can be found in our largest cities, and personnel have term limits or contracts far longer than presidential administrations.
To be clear, I’ve read just enough critical theory – for better or worse – that I’m now incapable of believing anyone when they claim their decision-making is “purely technical” or non-ideological. To claim non-ideology is itself ideology.
But this doesn’t entail a rejection of empiricism. Between the White House and The Federal Reserve, I’m much more inclined to closely listen to the institution that has a monstruous, centralized economic research apparatus.
Indeed, the Fed is arguably the largest financial-economic database in the world, and they claim that the economy is in for a long-run slowdown. The institution that is voted in and has explicitly political objectives – reelection and party politics, mainly – claims that the economy is booming, thriving, etc. Whose viewpoint is the better bet?
It’s expected that the sitting presidential administration will boast a positive economic record, using whichever metrics they need to highlight or turn a blind eye to. For instance, under Trump and prior to Covid, the labor market was technically strong (sticking to the bourgeoise economist’s preferred indicators, of course), with unemployment at or near all-time lows and wage gains at a pace slightly higher than inflation. The stock market was also at or near all-time highs.
The Biden administration practices the same half-truth tactics (sharing in common with Trump the ability to claim record low unemployment and record high stock markets). Not only this, they also just won a case where the Supreme Court ruled that they can freely contact social media companies to request removal of content that the administration determines as dis/mis-information. The platforms vary in their complicity or willingness to say no, but it only comes down to which platform has a higher rejection rate. They all, to some degree, give the administration the thumbs up.
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By the end of 2023, after some years of a moderate ‘return to normal,’ the Fed argues that we’re back on 2019 track. Most in the news will report that as a good thing, assuming that anything pre-Covid is a win. But the Fed’s 2019 track was an economic slowdown, or at least, a “weakening” and “softening” in production and investment.
Now, some researchers at the Fed are even arguing that we should expect a “long-run slowdown,” rather than a brief period of adjustment. Fed economist Michael Smolyansky, for instance, puts forth a strong argument that “Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019.”
The Fed and Congress have us in a recently new era of higher interest expenses and corporate tax rates, but even if you think a return to near-zero interest and corporate taxes solves the problem (the U.S.’s 15-21% corporate tax is already lower than the overwhelming majority of ‘advanced’ countries), Smolyansky insists that “the boost to profits and valuations from ever-declining interest and corporate tax rates” would soon dry up, bringing with it “significantly lower profit growth and stock returns in the future.”
Lowering interest rates would also fuel our lingering inflation pressures and mounting A.I.-led stock bubble. But, still, a rate cut would ultimately usher in lower monthly mortgage and credit card payments for our debt-reliant nation, a positive development that could even draw people to the polls in November in favor of whoever has achieved or is promising that. A lot of people are desperately waiting for a rate cut so they can buy a home or refinance their mortgage). In any case, it feels a little like we’re macroeconomically trapped, doesn’t it?
Perhaps the whole point is that some historical consciousness is important when considering the state of the economy and its connection to presidential economic records. The issues are beyond Biden/Harris and Trump, beyond the supply chain shocks caused by war and other geopolitical conflicts of the 2020s, even beyond the Fed’s Covid money printing, or, “hyper Q.E.”.
Those would be external forces to blame, scapegoats. Capitalism itself has just been in trouble for a while. It’s rotting, or at least, the state struggles more and more to hide that post-productive capitalism ironically produces insidious social and economic results, not just from the standpoint of labor but also of capital. I am not sure how much longer we should spend trying to fix it.