The United States has a great economy, by the usual metrics: the stock markets are at record levels, unemployment is low, production numbers are strong, and wages are rising.
Critics of the President’s economic plan often revert to the same complaints they made about President Obama: there are still a large number of people out of work. When people are out of work for an extended period of time, they are removed from the count of the labor force, which results in an incorrectly low number on unemployment statistics.
Even with those people counted, however, the percentage of unemployed in the country is still low; no longer a record or historic, but very low, and that is a sign of a strong economy.
This brings critics to the second point: the danger signs which continue to appear of slowing growth. These are natural and cyclical, and should not be a concern. The American banking system even has internal protection measures. If growth slows too much or runs consistently negative, the Federal Reserve can cut interest rates to flood money into the markets and provide a boost to hiring and production.
The main federal interest rate… the federal funds rate… trended around 6 to 10% through what were considered a boom time under Reagan and Bush. The rates dropped under Clinton, averaging 4-6%. They dropped to around 2% after 9/11, as the government tried to deal with the aftermath of the attacks, and then rose back to 5%. Since the election of President Obama and through the time of Trump, the interest rate has not risen above 2.5%.
This is the equivalent of throwing money at the economy as if we were in a perpetual state of recovery from 9/11.
The result of this has been great for investors, in the short term… and, as it’s been going on for more than a decade, one would have to say the medium term as well. But it carries risks.
The obvious one is that if a recession happens, there are no “brakes” to slow it and no way to spur a recovery. That’s the one everyone typically focuses on.
It’s not the only risk, though; the other is more insidious, and it’s the slide into poverty for retirees.
Many retirees were told to save money throughout their lives, and then, after leaving work, they would be able to live off their wealth. Not the principal, but rather off of the interest generated by their principal. That was a standard financial planning technique used, and working people amassed quantities in banks which would allow them to follow that plan. Dramatically low interest rates render that plan nonviable.
Unfortunately, it’s difficult to react retroactively. A retiree with $1 million in the bank is still able to meet bills of $50K/year… but they’d planned on being able to do so while leaving money to their children and grandchildren and occasionally taking trips, while having enough remaining for emergency medical care. Instead, they’ve been bleeding through their wealth, first slowly under Clinton and the first two years of Bush (then getting a push back up to around 6% in the latter years of Bush) and then quickly under Obama and Trump.
Considering how strongly the elderly turned out for Trump, this is a deep betrayal. They are losing their wealth dramatically. It was likely a factor in why they voted so strongly for the Republican in the last election cycle.
A Democrat – or, better, a third party candidate or outsider Republican – may be able to make inroads to the elderly vote by explaining to them why, in the midst of the “great economies” of first Obama and now Trump, they’re in more dire financial straits than ever and facing the loss of what little remains of their accrued wealth.
