By almost every measure, the American economy is healthy. The unemployment rate stands at 4.1 percent, the lowest it’s been since 2000. Stock indices have risen around 30 percent since President Donald Trump’s 2016 election. Consumer and business confidence are as high they have been since the Great Recession. Wages are finally rising too. In the most recent economic report released by the Fed, wage growth rose to an annual rate of 2.9 percent — again, the best numbers since 2009.
This recovery isn’t just taking place in the United States. In Europe, every economy but Germany seemed to miss out on any semblance of an economic recovery. China also began to show dramatically slower growth in 2015 than it had historically experienced. This has led economists to term the economic period we are living in “synchronized global growth,” with growth picking up, employment falling, and inflation remaining tepid throughout much of the world.
At face value, this spells good news for the Trump Administration. Since 2009, a major complaint of U.S. citizens has been that the economy does not work for everyone. Following the collapse of many banks, news about taxpayer funded bailouts were followed just a few days later by news of a major CEO receiving tens of millions of dollars in bonuses. All the while, the vast majority of America lay in economic ruin. For the first time in a long time, things look good. However, what may represent the biggest threat to the Trump economy could very well be of his doing.
One of the major reasons why many are optimistic about the current economic climate is the recent tax cut signed into law by the president. Reducing the corporate tax rate from 35 to 21 percent will increase the cash companies have to spend and invest, and cuts for individuals will put more money in the average American’s pocket. The timing, however, is not exactly ideal. With such a robust economy, we are likely past the “recovery” stage of the business cycle and are well into the “expansion” stage. The tax cut will therefore stimulate even more growth. As Lloyd Blankfein, CEO of Goldman Sachs recently put it, it will be like “throwing lighter fluid on a fire.” However, with so much demand in the economy, we are almost certain to see inflation as high as it has been in recent memory.
For those students who have followed economics for the past few years, we have never known true inflation and high interest rates. They are killers. They increase the amount of money already owed to lenders and increase the cost of borrowing new sums of money. For now, the economy is in full gear. This could change. Are we to face the systematic crisis of 2008-2009? That was a once-in-a-generation economic event, so it is unlikely. Are there plenty of threats to this current expansion? Absolutely.