Economics Month Pt. III – John Komlos on these ‘Not Normal Times’
John Komlos leads us down a bleak path of recent U.S. economic history at the HCA’s Economic Month event.
The Heidelberg Center for American Studies was glad to welcome the distinguished Prof. emeritus John Komlos during Tuesday’s evening lecture. Komlos was scheduled to talk about “The Economic History of Trumpism” and immediately made clear that he was glad to visit Heidelberg but that the purpose of his visit was not a happy one.
“These are not normal times!” – he boomed into the room.John Komlos
He made it clear what he thought about President Trump and is narrow victory in the 2016 election that was basically decided by a few thousands votes in some Midwestern states that translated into the majority of Electoral College votes. This could have easily ended up the other way around. Especially because around one third of the eligible electorate stayed at home entirely.
Nevertheless, he used his lecture to show that the election of Trump did not come out of nowhere. He translated his victory into what he called “path dependency.” The U.S. had entered a path of deconstruction of its own system starting with the watershed moment of Reagonomics and leading to the election of Trump today.
He also made clear what he thought about the claims that the American economy was doing swell, something that President Trump just repeated in his re-election campaign announcement in Orlando. According to Komlos, the U.S. economy is in disturbingly bad shape and the very glue that holds the society together is dissolving. Data on unemployment rates are misleading. The supposedly ‘full-employment’ claims are wrong; instead of 5%, the U.S. is facing about 10% unemployment, intensified by, for example, those who have dropped out of the labor force altogether and do not show up in the statistics at all. High suicide rates, opioid and alcohol addiction, preventable diseases, mass shootings, despair and desperation is what many Americans face today. The absence of jobs and the decline of many regions entirely is literally killing people.
Is this what a good economy looks like? I don’t think so.John Komlos
Desperate voters make desperate decisions, in this case, for Trump. Vengeance is another factor in this decision. People have slipped down the social ladder or are afraid to do so and thus “want to stick it up to the folks in Washington,” according to John Komlos.
But how did the U.S. end up here?
As indicated, the watershed moment for Komlos were Reagan’s tax cuts. Reagonomics has led the U.S. on a path that they cannot get off from, this is what he calls ‘path dependency.’ Reagan’s administration turned away from the New Deal in a quick and devastating fashion, cutting taxes for all people, but benefitting the rich most of all. As a result, inequality rose immediately, which has not been reversed since. Although the tax cuts were supposed to initiate the infamous ‘trickle-down-effect’ it has in fact led to indebtedness of the U.S. on all fronts. Private households spent money on consumption, the savings rate went down. The government faced a tremendous and growing budget deficit, which was also never reversed. The promised boom in the economy to finance the tax cuts, never materialized. Actually, the GDP growth stayed exactly where it was predicted even without the tax cuts and growth in general was far from stellar. With efforts against ‘Big Government’ and ‘Big Labor,’ unionized labor in the U.S., Reagan decidedly sent the U.S. on the path towards today’s economic and societal malaise.
Additionally, deindustrialization and hyper-globalization hit many areas in the U.S. extremely hard. These areas in the American heartland were destroyed, according to Komlos. Although his criticism of free trade agreements and the trade with China sounded like something President Trump would overall agree with, Komlos was decided in saying that he did not see Trump’s tariff measures as helpful because they do nothing to actually address all the issues the U.S. is facing since setting foot on the path of deregulation and liberalization since Reagan. For him, it is natural that the losers of globalization, those who had lost their jobs to mostly Chinese or Mexican competition due to free trade, would lash out eventually. Nothing was offered to them! Trade and globalization can remain positive for a country, if the country is willing to care for those who lose out in a globalized world. But this has not happened in the U.S. for the most part. Workers were not reskilled, or trained. They were not helped to bridge the gap between jobs or in training, and they do not have the money to do so themselves. With the jobs, health care and other provisions often left these regions as well.
“Nobobdy was careful” when it came to trade!John Komlos
Flashforward to the 21st century, the U.S. was hit with the biggest economic crisis since the 1930s and the newly elected president Obama was faced with solving it. But Komlos is highly critical of these efforts as well. Instead of using the crisis to profoundly turn around the economy and leave the ‘path’ the U.S. had entered, Obama turned to the ‘old guard’ of economists and experts that had helped to create the crisis in the first place. For Komlos, this led to Wall Street being saved and Main Street being ignored altogether. More hardship and inequality followed.
Trump is Obama’s legacy.John Komlos
The desperation that followed the last Great Recession, including the fact that so many people lost their homes while Wall Street recovered so quickly, let many Americans to believe that the establishment politicians were not on their side and could never right the wrongs they faced. One more factor in the decision to vote for someone who appeared to be completely outside of the political establishment.
For the future, Komlos is not optimistic. He thinks that the U.S. is still marching down the bleak path they had entered in the 1970s and 80s. This path has never been and never will be sustainable in any way. Summarizing his assessment of recent U.S. economic history he sees a list of issues that the country continues to face:
- The budget deficit of the government
- Private and student loan debts
- Foreign trade deficit
- Political gridlock
- Strong military-industrial complex with high and rising military costs
- Bad data on how the U.S. is actually doing
- Inefficient health and education system
- Imbalanced economy
- Technological change and lack of infrastructure
- Climate change
- Dependency on the Chinese (communist party regime)
- No savings rate
- Plutocracy due to money in politics
- Stagnating wages
- Ingrained economic ideology that is not changing
- Productivity slowdown
- Indebtedness to coming generations in every way
- 21st century issues that are tackled with 20th century ideas
- AND Inadequate economic theories to overcome all the above
So what can be done? On this, Komlos remains vague. He is certainly a proponent of government measures to help those Americans who have been left behind. But in a country with such stark political polarization as the U.S. it seems incredible, at least on the federal level, that any true ideology-reversing force is on the horizon. The U.S. would need to leave the path it has so long pursued – but they can’t.
There is one more event coming up in the Economics Month series at the HCA. On July 9, 2019 the HCA will host a panel discussion in German on Die Zukunft der Arbeit: Chancen und Risiken der Digitalisierung. Check out more here.
Dark Path by allispossible.org.uk see link here
Reagan’s televised address, White House Photo Office; Originally uploaded to Wikipedia by Happyme22 [Public domain], see link here
Trickle-down-meme, by Will McCulloch see link here
Occupy Wall Street, David Shankbone, Uploaded to Wikimedia Commons, see link here