Most of the news on the U.S. economy under President Trump has been upbeat and triumphant. But the reality, as Alan Austin reports, is quite different.
THE U.S. ECONOMY is like a mighty oak. Impressive from a distance. But up close, the foliage is patchy. Acorns are falling erratically — collected by only the fattest squirrels who have already hoarded more than they can ever eat. Worse, the rot at its core is gradually spreading.
Yet tweeting from its branches proclaims all is wonderful. So what is the reality?
Mind-numbing debt numbers
Federal government debt has clicked over $21.4 trillion. Yes, trillion, with a T. More than $1.6 trillion was added just in the 12 months to 31 August. That is the highest increase in one year since 2010 — during the worst global recession in 80 years. That is nearly five times more than was added in the year to August last year.
Record interest payments
The U.S. Treasury has just announced that the interest paid on the debt for August was US$38.4 billion. That brings the total for the financial year to date, from 1 October to the end of August, to a thumping $494.0 billion. Almost half a trillion. That is already higher than in any year in history — even at the depths of the Global Financial Crisis. And there is still a month to go before financial year end.
Spending up and revenue bleeding
Treasury’s monthly income and outlays numbers show why the debt is blowing out so rapidly. Spending to the end of July came to $3,450 billion. That is up 4.4% on the level at the same time last year — which was $3,305.9 billion. So, spending has not been curbed.
But here’s the real problem: tax and other revenue to July was just $2,766.1 billion. That is up less than 1.0% on last year — a substantial decline in real terms.
Clearly, revenues are nowhere near the level required to stop borrowing more and more trillions, let alone start repaying the trillions borrowed already.
The accumulated deficit – spending minus revenue – so far this financial year is $684.0 billion. That is deeper by $117.9 billion – or 20.8% – than the equivalent period last year.
Revenue is now running at just 80.2% of spending. Whoever calculated the impact of last year’s reduction in corporate tax rates got their sums disastrously wrong. The great tree is now suffering from advanced deficit and debt.
Missing the global boom
The reason this is so baffling – and appalling – is that the world is now in a phenomenal trade, investment, jobs and profits boom. The years 2015 to 2018 have been the best since World War II for the strong economies to repay the debt stacked on during past recessions.
Of the 36 developed countries in the Organisation for Economic Cooperation and Development, a majority of 22 has reduced debt as a percentage of gross domestic product (GDP) since 2014. Nine have kept it level or increased it marginally. Only five have increased debt to GDP by more than 4%: Australia, Chile, Japan, Norway and the USA.
Germany, Austria and the Netherlands have all reduced their debt by more than 6%. Slovenia has reduced its debt by 9%, Iceland by 25.3% and Ireland by an impressive 36.5%. If 22 rich countries can generate budget surpluses, then so should the others.
But deficits and the debt are not the only symptoms of a seriously diseased old oak.
Economic growth lagging
Annual GDP growth is just 2.9%, which is poor in the current boom. This ranks 107th in the world — out of 183 countries. (Forget the 4.2% growth being spruiked by the President and other fake news merchants. That’s a quarterly figure which bounces around like a kangaroo with a pogo stick.)
Employment has improved. But not as much as in countries surfing the current global surge. Nearly half a million fewer Americans had jobs in August than in July. Those needing work increased by 226,000 to 5,389,000. That’s higher than any time since September last year.
The jobless rate is stuck at 3.9%, which is not among the most successful nations. The U.S. now ranks down at 47th in the world on jobs.
As in Australia, the shift in wealth and income from the poor and middle to the top end has resulted in depressed retail trade. Retail sector workers fell in August by 5,900. That follows the loss of 41,800 retail jobs in June. There are now fewer retail workers than in any month since January, in the depths of winter.
Welfare needs remain high, with more school breakfasts and lunches provided now than a year ago.
Trump is right — at last!
Two weeks ago, Trump refused wage increases for federal workers. The reason, the President admitted, was that the economy was failing.
“We must maintain efforts to put our nation on a fiscally sustainable course, and federal agency budgets cannot sustain such increases,” he said.
This is correct. His previous tweets about an “economic miracle” and the economy “booming like never before” were incorrect.
Time now for the president to find arborists who know their job.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
Grow tall and true. Subscribe to IA.