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World’s largest economy in free fall

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Cartoon by Mark David / @MDavidCartoons

There is no longer any major economic outcome on which the United States is succeeding. Alan Austin explains and illustrates the decline of a once-great global powerhouse.

ECONOMISTS WORLDWIDE are watching the extraordinary collapse of what was until recently a seemingly indestructible economy. The United States still has the world’s largest economy measured by gross domestic product (GDP). But among developed nations, it is now at or close to the bottom on most rankings of economic health.

We can see from an array of charts when the rot set in and can deduce from these the causes. It becomes apparent immediately that the decline began two years before anyone had ever heard of COVID-19.

Four disastrous decisions appear to have caused the demise in America’s fortunes. The election of Donald Trump was one of them. The economy continued its positive trajectory on most variables throughout 2017 and well into 2018. By mid-2018 some got the wobbles, but not all.

Blow-outs in spending and deficits

The first warning signs appeared when revenue collapsed in 2018, as tax cuts for corporations and rich Americans took effect, while spending ballooned alarmingly.

Government revenue in President Obama’s last full year, 2015-16, came to 84.8% of spending. In the transition year, 2016-17, spending again increased faster than revenue, despite Trump’s promises to fix the books. Final revenue reached just 83.3% of spending.

This fell further in 2017-18 after Trump’s first annual budget to 81%. It then collapsed to 75.4% in 2018-19, well before any hint of an international pandemic. Not surprisingly, this was the worst budgetary outcome of all 36 wealthy members of the Organisation for Economic Cooperation and Development (OECD). (See the green chart, below.)

Currently, eight months into the 2019-20 financial year, revenue is running at an appalling 51.8% of spending – just over half.

This means funds are not available to build urgently-needed infrastructure, provide world-class education and health care, protect the environment, provide community alternatives to policing, or sustain people in poverty and homelessness.

Ballooning federal debt

The last few years have been the best in decades for well-managed nations to reduce debt. As we saw here last week, most OECD countries have been repaying borrowings.

Before his election, Trump campaigned on reducing the debt, claiming he would eliminate it altogether: “I would say over a period of eight years”.

The opposite has eventuated. Interest to be paid on the debt is now around $4,600 per U.S. taxpayer. Every year. Cutting taxes for the rich, together with the wasteful spending, have thus proven disastrous.

Trade wars unilaterally declared and comprehensively lost

U.S. exports increased steadily throughout 2016 and 2017. Then, in early 2018, Trump foolishly opened hostilities with several trading partners via bellicose tweets, claiming 'trade wars are good, and easy to win'. He imposed tariffs first in January 2018, then more in May and August.

From that point onwards, exports have tumbled, trade deficits have deepened severely, production has declined, farms and businesses have gone bankrupt and hundreds of thousands of workers have lost their jobs.

Monthly export levels routinely bounce around in advanced countries, but the trend is steadily upwards. The highest month ever for U.S. exports, however, was two years ago, back in May 2018. No other developed country has fared as poorly as this. Ireland and New Zealand, for example, had their highest month ever in March this year, despite the pandemic.

The latest U.S. monthly export level – just $151.3 billion in April – was the lowest for any month since April 2010, at the depths of the global financial crisis (GFC).

Record trade deficits

The monthly U.S. trade deficit widened to $49.4 billion in April, the worst gap in eight months. The rationale for Trump’s costly 2018-19 trade wars was that these deficits were too deep. They had averaged $39.8 billion over the last ten months of 2016. Trump’s tariffs folly – now abandoned after tens of billions in lost treasure and thousands of farmer suicides – has resulted in trade deficits over the last 18 months averaging $47.3 billion!

Industrial production

Industrial production increased steadily through Trump’s first two years, in line with the global boom in investment, production, jobs and profits. In July and August 2018, production increased by more than 5%. Not too shabby. Then came Trump’s tariffs. It has been downhill from there. Production actually contracted last September as demand for exports fell — and has continued to decline ever since.

Jobless Americans

The one and only variable which remained buoyant through most of Trump’s tenure has been the jobless rate. Of all 30 or so major economic indicators, this was the last to crumble under the pressure of the continuing wrong calls.

It took gross mismanagement of the coronavirus pandemic to reverse the positive trend in American jobs which started back in 2010, although the rate of decline eased somewhat in 2018 and 2019 as exports and economic growth faltered.

The current jobless rate of 13.3% ranks 33rd in the OECD.  Only Canada, Spain and Greece are higher. The slump of 11.1% over the last 12 months is the OECD’s worst.

Along with deteriorating job numbers, recent months have seen dismal wage outcomes for those still with jobs. Of the 33 advanced countries with wage movements listed at Trading Economics, the USA was a distant last with a contraction over the last year of 8.8%.

Collapse across the board

Over the last three years, no area of the economy has improved either relative to earlier periods in recent U.S. history or relative to comparable developed countries. Not one.

Other outcomes which have deteriorated disastrously include GDP quarterly growth, worker underutilisation, the youth jobless rate, interest rates, retail and wholesale trade, mining production and vehicle sales. Outcomes significantly down since Trump’s first budget include tourism, inflation, the housing index and homelessness.

These are not the results primarily of mismanaging the coronavirus. Yes, that has worsened some areas in recent weeks. America’s decay started with Trump’s wasteful spending and was exacerbated by the tax cuts and the futile trade wars. These decisions have done in three years what America’s global rivals failed to do over the last 100.

Alan Austin’s defamation matter is nearly over. Readers are warmly urged to support the final crowd-funding push. The latest update is here; the GoFundMe page is here.

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