World Economy
0

Zero Inflation Holding US Economy Together

Zero Inflation Holding US Economy TogetherZero Inflation Holding US Economy Together

Don’t expect any miracles from the economy. But don’t expect a collapse either. In political terms, it’s kind of a Mexican standoff.

Team Obama says they saved us from another Great Depression. And they point out that 3.1 million jobs have been created in the last 12 months. Republicans counter that this is the slowest post-WWII recovery on record and that real GDP is roughly $2 trillion below potential. They add that the labor-force participation rate is 62.7 percent, a 39-year low, and that there are at least 15 million people who work but can’t get jobs, HumanEvents reported.

Yet both sides may actually come together for a major pro-growth initiative: an Asia-Pacific free-trade deal that will lower tariffs and other barriers. Lower tariffs are lower taxes.

Democratic labor unions don’t like this. Neither do isolationist Republicans. They both think American wages and jobs will be damaged. But as House Ways and Means chair Paul Ryan argues, free trade is a positive sum — both sides benefit — not a zero sum.

Export-related jobs typically create higher wages. And one-in-five American jobs depend on trade. Moreover, the spread of market capitalism and free trade in China, India, Vietnam, South America, and parts of Africa has lowered dollar-a-day abject poverty by 80 percent over the past three decades. And with hundreds of millions of people entering the global middle class, America’s low-cost producers are seeing their markets expand.

Of course, a strong corporate tax cut, on a territorial basis, with easy repatriation of overseas profits, would give US businesses large and small even lower costs and greater competitiveness. But the corporate tax cut is not going to happen — at least until after the 2016 election.

Meanwhile, back to the economy, real-GDP (RGDP) growth was barely above water at 0.2 percent in the first quarter. Bad winter weather undoubtedly played a roll. But consider this: A year ago we had a decline in economic growth of 2 percent — again, largely due to the weather — but the next two quarters rebounded by nearly 5 percent.

So if you look at four-quarter trends for perspective, RGDP actually rose 3 percent over the past year. And business investment increased nearly 5 percent, despite a big cutback in energy-company capex.

 

Financialtribune.com