31 December 2023
In summing up economic issues and events, one might begin with the year followed by a colon and a catchy subtitle. But what adage, catchy or trite, for the year just ending? How about the following?
Edward Lotterman
2023: The best of times, the worst of times.
2023: The gathering storm.
2023: What the hell (or heck) were we thinking?
2023: It can’t get much worse, but it will before it gets better.
2023: The relative calm before the storm.
Take your choice or coin your own, but few people would mimic Frank Sinatra or Michael Jackson and say, “2023: It was a very good year!”
It is clear that the period from 2020 through 2025 will go down in U.S. history as critical ones for our society, our economy and our democracy. But we may not understand exactly why and how for a long time.
When recently-deceased Henry Kissinger made his covert flight to China in 1971, there was a tea break in the negotiations. The participants were all well-schooled in history and a debate broke out over the effects of the French Revolution on world history. Chinese Premier Zhou Enlai stood by silently as the discussion raged. Then, 180 years after the events under discussion, he opined: “Perhaps it is too early to tell.”
We are still interpreting and reinterpreting how the 1960s affected us. Indeed, the political turmoil we face now has seeds planted six decades ago. The Great Depression is 90 years in our past, but economic and social historians still ponder it and accepted interpretations fade away. The same will be true for the 2020s.
All said, a likely subtitle may be “2023: The year Congress (almost) died.” Whether the parenthetical “almost” will be deleted depends on what we collectively do in 2024 and the rest of the decade.
Start with key background. By key indicators of output, employment and unemployment, prices, business profits, trade and stock prices, the U.S. economy is doing by far the best of any of the major industrialized democracies. Yet many in the American public think the economy is doing very badly and such dissatisfaction may prove crucial in the 2024 elections.
Statistical indicators aside, we have many problems.
Homelessness remains high and visible in many areas. Despite growing average incomes, earnings remain low for a significant fraction of the workforce and workplace conditions and management practices the most onerous in a century. Unemployment remains high for low-education workers even as employers at all levels bemoan labor shortages.
Large numbers of immigrants are entering our country, many illegally and many quasi-legally under an asylum system that is outdated and overwhelmed. The influx of people from other nations overwhelms services available in cities where they cluster.
And the large supply of powerless and docile illegal workers certainly suppresses wage rates for low-skill citizens. Ironically, millions of such undocumented immigrant workers are hired by businesses whose owners contribute to the campaigns of politicians who vow to stop immigration.
There is a large disparity between the situations of those over age 40 and with college educations compared to those under 40 with high school diplomas or less. Easy money boosted housing prices for 15 years and they have not yet fallen as interest rates were boosted to reduce inflation. Baby boomers saw equity in their houses burgeon and now are once again enjoying good returns in their investment accounts. Younger people could barely afford houses even when mortgage rates were low and don’t have a prayer now with higher ones.
One could go on and on. Yet I’ll wager that future historians will zoom in on the self-induced collapse of Congress as a key actor in U.S. governance as a root cause of many economic and social problems. Its willful impotence casts impossible burdens on the president, the Supreme Court and the Federal Reserve as institutions to solve all challenges. This inevitably leads to failure and increases tensions in our body politic.
Understand that until the 1930s, Congress was the dominant policy maker. Presidents could ask for actions, but it was up to the House and Senate to authorize new agencies or programs and to appropriate money for them. Key leaders, including committee chairs, in each house shaped legislation that a president either accepted or rejected.
That changed with the Great Depression. The economy imploded but the new president, Herbert Hoover, seemed unable to provide leadership and Congress dawdled. The 1932 election brought Franklin Roosevelt, who had a host of action-oriented advisers, and strong Democratic majorities in both houses who gave FDR most of what he wanted. Then we faced the most difficult foreign war in our nation’s history. That was followed by a half-century of confrontation with countries dominated by a totalitarian ideology contrary to our political and economic identity.
All this transformed the presidency into the primary branch of government. Congress trailed behind. It still held the power of the purse and still shaped legislation, but Capitol Hill was secondary to the White House. What power it had depended on a broad consensus of bipartisan consultation and cooperation.
The avuncular Irish-American House Speaker Tip O’Neill, a Democrat, would go in late afternoon to the White House to sip whiskey and negotiate with an equally avuncular Irish-American President Ronald Reagan, a Republican, and hash out compromises on key issues. Senate Foreign Relations Committee chair Richard Lugar would appear on Charlie Rose’s interview show together with the committee’s minority head Joe Biden, and it would be hard to find much gap between them on how to deal with a collapsing U.S.S.R. or an aggressive Saddam Hussein.
That cooperation began to crumble with the House speakership of Republican Newt Gingrich. Democrats had controlled the House for 50 of the preceding 60 years and Gingrich thought the only way to get conservative legislation passed was aggressive confrontation rather than cooperation. After 2010, the Tea Party Patriots ratcheted this approach even higher. And Congress has been AWOL on all major issues ever since.
Perennial deficits are decried, but Congress has not passed a budget bill on time in 40 years. Immigration is a huge issue, but Congress has not passed any legislation since the 1986 Simpson-Mazzoli Act sponsored by a Republican senator and a Democratic House member and signed by a Republican president. And so, as on nearly all other issues, government is stalemated. So long as our democratic processes are paralyzed, the long-term cancers in our economy will grow.
So we end 2023 with the economy booming by virtually all numerical indicators in the short term but resting on rotting foundations. We face a constitutional crisis in our elections systems and in our choice of a president. The first large land war in Europe in 80 years continues and new fighting in the Mideast threatens commerce through the Suez Canal and hence the world economy. China flexes its muscles as its economy idles in neutral.
What does this all mean for specifics of what we face in our country’s economy in 2024? That is a subject for next week.
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St. Paul economist and writer Edward Lotterman can be reached at [email protected].