Economic lessons from Yoko Ono and Moses
One year ago, I predicted Hillary Clinton would be our next president unless there was either moral or economic outrage in the United States. The outrage occurred, both implicitly and explicitly, reflected in the campaign rhetoric of both Bernie Sanders and Donald Trump.
As of Nov. 8, the moral outrage may have subsided for the 81 percent of evangelicals who voted for Trump, given, among other things, his pro-life stance. Nevertheless, outrage continues for college age, minority groups and others who believe their freedom to stay in the country and express themselves in their own manner already has been — and may even further be — jeopardized. The economic outrage will not subside overnight given the national poverty rate of 13.5 percent (as well as 15.8 percent in Michigan and 26.7 percent in Grand Rapids), along with the lackluster participation rate still near its historic low of 62.8 percent.
We aren’t on the road to prosperity; neither are we on the road to perdition. Slow GDP growth averaging 1.7 percent with an unemployment rate of 4.9 percent sends mixed signals. Oil remains low ($44/barrel) and is going nowhere. With Iran pumping oil for arms and the continued dependency of the OPEC nations on their single most valuable export, we will hover around $50 per barrel for the foreseeable future. U.S. debt is $20 trillion (increasing $10 trillion from 2008 to 2016), with $6 trillion held by foreign nations and annual interest on the debt well over $400 billion. Seventeen percent of GDP is spent on health care alone. Labor productivity is at a standstill (even with the latest increase of 3.1 percent) and is the all-important engine that drives increases in real wages. Robert Gordon and others believe the productivity miracle due to the application of technology has greatly dissipated.
My main concerns involve two areas both reminiscent of pre-2008: housing and consumer credit. The median price of a home in the U.S. is near an all-time high, while the median price of a home in the GR area is at an all-time high. Along with the danger of another housing bubble is that revolving credit (the bad kind of debt for many Americans) is back to 2008 levels (close to $1 trillion). Consumer credit outstanding as a percent of GDP is the highest on record — higher than in 2008.
Regarding Fed policy, Janet Yellen might do to the world economy what Yoko Ono did to The Beatles. They still existed but only as individuals and not in their synergistic creative state. Interest rates, led by U.S. central bank policy, are acting in a similar way to the competitive devaluations in the inter-war period where nations exported their unemployment. Today, with cheap credit, nations are able to create, sustain and attract business investment, along with increasing consumer spending at the expense of other nations in a new world where competition trumps cooperation.
We are long overdue for a rate increase and the lack of courage to raise rates when almost every macro variable signals to do so have not only negatively affected financial markets in the U.S. but also overly inflated the stock market.
Finally, the future of our nation lies with our families. Today, only 46 percent of U.S. children are living in a home with two married heterosexual parents in their first marriage. Throughout history, the notion of family as an important economic unit has been, and still is, at the center of many well-known economists’ thinking. From Adam Smith to Malthus to Simon Kuznets and, more recently, Nobel winner Gary Becker, these individuals have made it clear families and their children are necessary to replace workers and are vitally important for national production. Each family, in a sense, is a firm that produces and consumes. To neglect the family is to neglect the engine that keeps economies growing.
Moses gave us one of the keys to health and prosperity when he said, “Honor your father and your mother, as the Lord your God has commanded you, so that you may live long and that it may go well with you in the land the Lord your God is giving you.” God requires that we respect our parents, which in turn creates respect for others.
In a family, you learn the lesson of civility in not hitting your sister or brother or speaking badly of them. In a family, you learn the valuable lesson of honoring those in authority. In a family, you learn the lesson of telling the truth, because your mom or dad surely will find out what you’ve done at school today. In a family, you learn something about working, saving and investing.
The answer to a thriving national economy is a nation of thriving families. No institution or government program can replace it. It’s the bedrock of society and the springboard for religious and economic liberty.
Brad Stamm, Ph.D., is the Professor of Economics at Cornerstone University and chair of the Division of Business.