Avoiding a Trump / McConnell Recession

The US’s Economic outlook is full of potential; but just like that oft heard comment by parents of their school age children, it can be as much an assessment of beneficial opportunities as it can be of ominous risks and concerns. There is no doubt that the Corona virus has had in impact on the US and the global economies nor that some substantial efforts have been made to offset and protect the US’s economy from the consequences brought on by the pandemic. Supporting the US economy has been a major effort by local, state and the federal government entities. Congress acted to increase the federal debt to avert some of the most dire consequences that were created with a radical downturn in various industry segments and shifting activities in others. Supply chains have been disrupted and the consumer segment has undergone some remarkable adaptations. And as with COVID-19, the risks to the US Economy remains even as the approval of vaccines appears imminent. For President-elect Biden this is a moment where his Administration should point out that the potential for a second economic downturn from COVID-19 will rest heavily upon the actions or inactions Trump, his Administration and Sen. Mitch McConnell. This would just be a smart position to establish since decisions and actions taken before Biden takes office can have causal effects that cannot be reversed or responded to in a sufficiently timely manner; not to mention that a Republican Senate could prevent President Biden from acting in the nation’s interest and potential avert another phase of US COVID Recession. It’s not hard to foresee a downturn in the economy while the Corona virus rages over winter. In some respects the US Economy has rebounded where work and services can be performed remotely and production work has adjusted to accommodate worker safety into the workplace environments. The COVID Relief Funding efforts provided support for many families to maintain themselves when their personal incomes were reduced or eliminated. This income protection further supported the general economy which heavily depends upon the consumer side of the economy. But that undependable potential has appeared on the horizon again. The Relief/Stimulus package also supported business from the large corporations to small businesses (that could get approved funding). The US is rapidly approaching another choice of paths to take regarding the economy during COVID. There are multiple paths to choose among but there are three basic options that characterize what Congress is contemplating.

One path would be a “continuation” path that provides more Stimulus/Relief funding to buttress the economy longer until a COVID vaccination program can enable a return to a broader and more robust consumer-driven economy. This path would require a funding level not altogether different from that used to initially support the economy thus far. This path is favored by the Democratic House, and generally opposed by the Republican Senate. There is no effort being made by the Administration of note. A second path would be a much-reduced Stimulus/Relief funding package that targeted some particular businesses. Taking this path would entail some additional risks since will by it’s nature reduce the level of consumer spending that can occur from a sizeable segment of the population which will thus reduce the flow of money throughout the economy. There will also be additional costs incurred in the near-term as there will be more disruptions in local and state economies from ‘chain of events’ effects that proceed from any downside that isn’t prevented that would have been prevented under a “continuation” path. For example, there is likely to be more unemployment from marginal businesses that cannot sustain their employee levels. As the overall economy feeds off the flow of money from robust consumer demand, a reduction in disposable (and even necessary) spending will potentially put the economy on a diet or worse start to starve the economy. This path is favored by the Republican Senate which believes that taking on more government debt is too risky. It is unclear what the Republicans believe the results of their funding level will be or what it will achieve.

The third path is not so much an active choice but a choice due to an inability to find a compromise that each side can support; in essence an impasse (I thought the slight play on words was an amusing respite). Now there are many ways that different compromises could be created to find mutually acceptable solutions to proactively maintain a robust and dynamic US Economy; but like everything in life, that pesky ‘potential’ problem raises its head. While our political leaders are charged with the duty and responsibility to act in the nation’s and public’s interests there is no requirement that they do so. In ignoring that duty, Congress doesn’t violate any law of physics; doing nothing is just as consistent with the laws that govern the world as making an actual effort to affect and direct the course of events is. Regardless of what Congress does or doesn’t do, the future of the nation and its economy will play out depending upon the forces that are exercised or withheld. The outcomes will change accordingly with what is funded and how that energizes the economy or throttles it back to a slower and lower level.

Because the dependency of where the US Economy will go from what Congress does / doesn’t do to support relief and stimulus is tied to the timing of actions taken, a savvy politician would not wait until the consequences are produced if that politician believes that the actions needed to avoid a second recessionary turn then they would be wise to make that clear to the public. Now, in politics the easiest way to put this into focus is to make it clear where the responsibility lies from a “cause and effect” perspective. Hence naming that ‘potential’ risk, the Trump/McConnell Recession is merely one facet of informing the public. This tactic also provides Biden with an opportunity to help Sen. McConnell see the benefits from supporting policies that will prevent recessionary triggers and benefit the US Economy. McConnell will of course have a choice along with the other Republicans to act as they deem appropriate but that also comes with the accountability for what happens. That is the value in a “cause and effect” strategy in setting policies to the Biden Administration. It will be interesting to see how our partisan politicians work out their strategies and solutions to this situation and the risks that the nation is going to be facing.