Economists are becoming worried about the trend shown by the economic indicators, they see the chance of another recession increasing. Since the recession of 2007-08, the task of stimulating the economy has fallen mainly on the Federal Reserve because Congress has gridlocked itself into being useless. As a consequence of the recession, public sector debt rose from 64 percent of GDP in 2008 to 104 percent in 2015. Content with making divisive ideological orations, the conservative contingent in Congress ducks making decisions. This results in a disgraceful melee to pass the annual federal budget. Coming up with a workable, long-term federal debt reduction plan is beyond the capability of federal lawmakers.
America’s housing market remains stable, the economy is adding new jobs. The overall GDP growth rate has been poor. Economic growth in 2016 is forecast at a low 2.4 percent. Although unemployment has fallen to near pre-recession levels, the productivity growth of the labor force remains perplexing sluggish. To complicate matters, the low interest rates have not resulted in more borrowing or spending. Although American interest rates remain low and inflation is well below the two percent goal, the nation’s decaying infrastructure needs have not been addressed.
A fiscal boost comes with capital spending on new infrastructure and/or the maintenance of existing systems. The money spent on schools, roads, hospitals and water systems induces complementary spending in other sectors of the economy. The potholed roads in American cities push up car-maintenance cost by $700 per vehicle. A third of America’s roads are in poor shape, one in nine of the nation’s bridges are no longer structurally sound. In 2010, the U.S. Senate blocked a proposal to establish a public infrastructure bank and a plan to spend $50 billion on improvements to roads, railways and airports. It was just part of the ongoing partisan squabbling that has slowed the recovery.
America’s irksome banking sector is performing better because in 2009 the banks were required to raise capital or had it shoved upon them with restrictions by the government. Although there is much talk about reforming the tax code in Congress, little gets done. An ideal tax system should be simple. It should be progressive, placing a greater burden on the rich. The tax system should also be impartial, not influencing people’s choices about how hard to work, or decisions on what to produce or consume. In short, it should be a revenue raising venture to support the government.
The economic trends in other countries are also turning gloomy. The European Union is becalmed, many emerging markets are facing increasing debt, slow growth, declining currency values and rising inflation. Economic growth in China, the world’s second largest economy, is slowing down. The Federal Reserve has virtually nothing left in its arsenal of recession fighting and economy stimulating tools. If and when the next recession arrives, it will be up to the administration and the standstill Congress to come up with new programs. Based on the record of the recent past, the prospects are not very good for the United States.