By Isaac Greenwood
2016 has ushered in a national election cycle like none other. In the aftermath of the Great Recession of 2007-2009, and despite the rhetoric espoused by many of the leading candidates on both sides of the aisle, the still-recovering American economy would be best served by centrist economic policies given the fragility of international developments and tepid growth.
The Great Recession cost the American economy billions in productivity and had long-lasting effects on the domestic and international economic orders. Even after the height of the Recession, U.S. unemployment peaked at 10% as workers were laid off in increasing numbers. Thousands of Americans were impacted by the sudden burst of the housing bubble, which significantly devalued their homes while also setting of a global financial crisis from the prevalence of mortgage-backed securities. While China and Russia weathered the crisis relatively well, most countries heavily engaged with the U.S. economy, notably in Europe, felt the shockwaves of distress as the turmoil increased.
The Federal Reserve, under the guidance of former Chairman Ben Bernanke, engaged in bailing out or aiding firms deemed “too big to fail” like AIG and a variety of large banks which had become increasingly interdependent with a number of industries. The Fed embarked on a policy of quantitative easing and slashing interest rates to historic lows to maintain a high money supply and embolden the teetering economy. In addition to the fiscal policies such as the Troubled Asset Relief Program (TARP) and Emergency Economic Stabilization Act of 2008, Washington was successful in preventing a catastrophic meltdown of the U.S. economy.
However, the American economy is not out of danger yet. A myriad of factors remain that threaten not only domestic prosperity but also the international economic system given the rapid globalization of the past twenty years. The American Dream may still be attainable, but only with the careful monetary and fiscal policies that will not strain the moderate economic recovery of the past five years.
While unemployment has reached the Fed’s target of 5%, the labor force participation rate remains at 63%, down from its historic 66% average. To maintain full employment and continued consistent job growth, candidates with job creation programs would aid in the recovery as opposed to those who seek to cut unemployment assistance and government spending.
Another key measure of economic health is inflation. Often measured by the Personal Consumption Expenditures Price Index (PCE), inflation is currently below the Fed’s target of 2%. While in the United States this number is near 1.7%, European inflation is almost 0 and has forced the European Central Bank to enact quantitative easing through 2017 as a means to prevent another crisis. Rather than meddle in the workings of the Fed and politicize the institution, the incoming President must remain aware of Chair Janet Yellen’s guidance in bolstering the American economy and work to promote job security.
Beyond macroeconomic growth and stability, issues of wealth inequality and social security have become forefront topics for the average American. With a stagnant lower class and growing upper class, the American middle class has been shrinking over the past 45 years. The share of aggregate income held by middle-class Americans has fallen 19% from a previous high of 62% in 1970, and the Recession saw middle class wealth shrink by 28%. Once a representation of the American Dream and success, the middle class ought to be supported through tax cuts and incentives by future candidates to ensure domestic economic stability, and the increasingly wealthy upper classes should bear a larger burden of taxation to account for the wide discrepancies under the current system.
With increasing life expectancies, Social Security reserves, which are expected to run out of money by 2034, must be increased to provide for the nation’s poor and infirm. Politicians who suggest cutting Social Security benefits or taxes will fail to address the magnitude of the program by failing to provide for the 65 million who require it. As Mahatma Ghandi said, “A nation’s greatness is measured by how it treats its weakest members” and that certainly holds true with regards to the aged, infirm, and poor of the United States, although current policies seem to do little to ensure their future stability.
Given the precarious global economic situation, in addition to forecasts for another recession within the coming two years, drastic tax or spending cuts could exacerbate future economic issues and threaten to undo the slow but steady recovery of the past administration.