A major fear means a major economic bust

Repeat after me, “Republicans cannot be trusted with the economy.”  

Again, “Republicans cannot be trusted with the economy.”  

No, I’m not saying the Trump Administration’s delay in getting people tested for coronavirus caused an economic downturn. 

As I wrote in August, “inflated assets and fear cause economy-wide downturns.”

I didn’t foresee that a virus would instigate that fear.  

For 45 years, Republicans have pumped more capital into the economy, creating surpluses that inflate the price of stocks and real estate. 

Market analysts regularly report on how a company’s assets compare with the price of its stock.  Major investors buy stocks they know are overpriced because they believe others will keep pushing the price higher–until the day they don’t.  

Any fear sets off price “adjustments” or–when the market is highly inflated–a “crash.” 

Then the government throws billions of dollars at the problem until the economy levels off. 

Democrats believe a healthy economy needs a balance among three assets–labor, buyers, and capital. If there aren’t enough buyers, support more public works and a stronger safety net. If there aren’t enough laborers, support training programs and let wages rise to draw more people into the workforce. 

President Eisenhower understood this. He battled a stagnant economy by initiating a coast-to-coast freeway system. More wages meant more buyers–and the economy grew in spite of a top income tax bracket of 90%.  

In contrast, the Trump Administration passed a major tax cut for the investor class when both workers and buyers were in short supply. The result was a minimum increase in production, major inflation in the price of investments, and a spiraling deficit unheard of in times of nearly full employment.  

Democrats want deficits low when employment’s high so there is room to increase spending when the economy needs a jolt. Both Clinton and Obama saw deficits decrease during their terms.  

As I wrote in my Aug. 27 column, “..the administration’s tax cuts and trade wars have left us with no weapons to battle a recession when it does happen.”  

One tactic generally useful in a downturn is lowering the interest rate to make expansion of capital cheaper. 

But a capital shortage isn’t the problem now. More investment is not going to make going to work or shopping safer. 

But the Trump Administration hoped it would save the stock market.   

So on March 3 the Federal Reserve Board lowered interest rates half a percentage point.

According to history Professor Heather Cox Richardson, “investors saw the cut as a sign things were worse than they thought. The Dow Jones Industrial Average dropped almost 800 points.”    

The Fed tried again on March 15, slashing interest rates almost to zero and pledging to buy $700 billion in bonds. Richardson notes that the next day the Dow Jones dropped 2,997 points.

The government’s one other tool is to throw billions at the problem–and Congress is obliging. Congress.gov lists two laws and 33 bills introduced to deal with the current crisis.

Some appropriations aim to ease the very real coronavirus threat and others, to restore  confidence in the stock market.

The two laws passed deal with the real crisis. HR 6074 appropriated $8.3 billion to agencies responding to the outbreak. HR 6201 provides for “free coronavirus testing, expanding food assistance and unemployment benefits, and requiring employers to provide additional protections for health care workers.”    

But an email from Rep. Russ Fulcher touts a $1-trillion-plus Senate bill to aid small businesses, airlines and “other severely distressed sectors,” and money market funds. Also included would be direct payments to every adult citizen of at least $1,000. 

It’s basically a “love-the-Republicans-in-spite-of-this-mess” bill.  

Published by Judy Ferro

Judy Ferro is communication director for the 2C Dems and a columnist for the Idaho Press.

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