The stock market has predicted nine of the past five recessions—a joke from master Keynesian of decades ago Paul Samuelson. Samuelson’s great rival on the supply-side, Wall Street Journal editorial maestro Robert L. Bartley completed the thought, when he quipped, and in the other four, Washington got the message and mended its ways in time.
If it’s still his economy, the market no like.
The question that all but appears to us today is: is this one of the five or one of the four? The stock market, after all, is wobbling. The Dow industrials are nearing ten percent down from their recent peak, which would be correction range, a place the tech-heavy NASDAQ has already visited.
The market started the wobble in September, with a prefigurement in March. What could it have perceived? Perhaps these three candidates:
The Trump administration’s economic policy is netting to zero. There was a credible tax-rate cut last December. The corporate tax rate at last fell out of the highest-in-the-world rank, and the top income tax rate went down to only nine points above the final Reagan level. But then came the tariffs. The initial promise was that they were a negotiating tactic to get net lowering of tariffs around the globe. We remain stuck with just the new tariffs without the no-tariff payoff, with hopes that a G-20 summit will solve the whole thing. Sure.
Net zero—a decent income tax plus tariffs. The market cannot expect net zero policy reform on the President Barack Obama status quo as a pretext for a renewal of economic growth.
The second candidate is obvious, the Nancy Pelosi House of Representatives. Obama gave us the blunderbuss health care law that Speaker Pelosi passed so that she could read it, the tax cliffs that effectively pushed widely applicable rates in the code near or over 100 percent, a sunsetting of the 2001-03 tax-rate cuts, a spending boom, and regulatory expansion. The Obama-years signature was sub-2 percent economic growth out of the deepest recession trough in anyone’s memory.
If the Democratic political gains of late portend more of that, the market has had every reason to slide.
The third candidate is the renewed indifference to the massiveness of government spending. Federal outlays have now blown through $4 trillion a year. This represents an increase of a third over economic growth this millennium.