Whether one agrees with Donald Trump’s economic policies or not, the state of economy he will inherit needs to be clarified. A recent article by the Washington Post’s Catherine Rampell stated as one of her main theses that Trump will inherit a strong and vibrant economy. While other aspects of the article make interesting points, the premise upon which the article’s foundation lies upon is mistaken. The economy that is being handed to President-elect Trump is not in the most favorable conditions as claimed by the article, it is actually the contrary.
In 2008, one of the greatest recession in modern history struck the US and the world. This economic disaster occurred in the last year of the Bush administration as the Obama administration was coming into power. While President Obama inherited the economic disaster and attempted to remedy it, all he has done, similar to his predecessor, is further conceal the root cause of the issue. Despite what Mrs. Rampell claimed as economic success by the Obama administration is anything but success.
The economic conditions presented to the President-elect are not favorable, nor was the economic conditions provided to President Obama. A long understood political maxim has been that the president cannot directly affect the economy, but that has not been the case in the last decade or so. The economy has been sitting on a bubble for a long time. Just like anything, all good things must come to an end. The prosperity under the Clinton years was due to for a recession but was dampened by the Bush administration’s famous tax cuts and other detrimental economic policies. But such meddling could only go so far before coming to an end, which it did in 2008. Even though that would have been the panacea to the economic travails, the Obama administration began to implement a series of government interventions that has helped delay the inevitable, a major recession.
In order to understand why the Washington Post article is incorrect, a review of the main arguments is needed. The article puts forth the following arguments:
2/3 of Trump’s supporters don’t believe government data.
A Gallup Poll found that 2/3 of all Americans do not believe what the mainstream media reports. Another poll found that 81% of all Americans do not trust the government. So despite painting a picture of Trump supporters believing in tin-foil hat theories, which some perhaps do, the country as a whole, liberal or conservative, is tired of what they see as misinformation, such as this Washington Post piece.
The unemployment rate is 4.6%, which President Obama can claim credit for. Anything around 5% or lower is considered full employment but to think of economy as fully employed is misleading. Even though the unemployment rate has been falling since 2008, there are two things not being discussed. The government performs mathematical voodoo and the Obama administration is not the first, it goes back many presidencies. A cognitive dissonance exists amongst the people who use government statistics to claim the country is fully employed yet ignore the other bits of information that exists. There is the U-6 unemployment rate, which accounts for those working part-time but desiring full time work and those who desire work but could not find it. The rate is more than twice the supposed unemployment rate, so how can it be claimed that the economy in great condition when the data says otherwise? Furthermore, the unemployment rate also declines because people are no longer seeking work; therefore that figure in itself is not a true indicator of an economic recovery. It is better to review the labor participation rate in order to comprehend the actual status of the economy. The participation rate hovered at a high of 66% prior to the Great Recession. Since then it has been on a downward trend, currently hovering right below 63%.
While real wages have increased in the last several months, the data set is not an accurate one used to demonstrate the true purchasing power of Americans. Instead what should be reviewed is the real median household income. This has not reached the highs of the late 1990s. This indicator is still trending downwards.
Gas prices should never be used as an indicator of economic prosperity. A president does not control the price of gas; rather it is determined by energy markets as well as the largest oil producer, Saudi Arabia. Current oil prices are low and being kept artificially low by Saudi Arabia supposedly for an array of reason.
The stock market continues to reach new highs. The reason for this continued growth in the last several years has been due to quantitative easing and near zero interest rate. With more $12 trillion dollars printed, nearly $10 trillion in negative-yielding global bonds, and more than 650 interest rate cuts since 2008, the market has been artificially pumped to these new highs and will not sustain. Unfortunately, when the crash occurs, it will have to compensate and will do so in a very detrimental way.
One of the greatest overlooked factors that have not been accounted for is the quality of jobs. In the decade since the Great Recession, most of the jobs created have been service jobs rather than skilled and manufacturing jobs. This is an important indicator that should be accounted for in determining the robustness of an economy. Skilled jobs are vital in ensuring a healthy middle class, which is essential to any democracy. Yet the US economy has transformed since the Great Recession into a 1099 or uber economy. This does not bode well for the future.
While Trump’s plan for an infrastructure overhaul might help alleviate some of the economic toil, it is nothing more than another bandage for a much larger issue. A recession is inevitable; it will come when nobody knows perhaps next year or in four years. But unlike any other recession, this will be worse than the 2008 recession. Similar to Trump’s claim of draining the swamp, the economy has needed draining for the past couple of decades. Perhaps this will happen under the Trump presidency, maybe not. But it should be known that it is not Trump’s economic policies per se that will lead to the next great recession, he may be able to delay it or expedite this collapse but it will not be as a result of him. It is a long time coming and has been only exacerbated by President Obama and his predecessors.
Côte d’Ivoire: Robust growth under the looming threat of climate change impacts
According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.
“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.”
However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.
As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.
“This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”
The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.
The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.
A future of work based on sustainable production and employment
On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.
As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.
In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.
A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.
I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.
Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.
We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.
The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.
Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.
As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.
Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed
Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.
“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.”
The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.
The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.
The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.
In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.
“To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.
The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.
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