Is figure 1 showing residential construction when it was supposed to be nonresidential?
ask CUMMINS where the next downturn is going to come from
Mckinsey claims that 1/3rd of jobs will be lost to A.I. by 2030:
"We estimate that between 400 million and 800 million individuals could be displaced by automation and need to find new jobs by 2030 around the world, based on our midpoint and earliest (that is, the most rapid) automation adoption scenarios. New jobs will be available, based on our scenarios of future labor demand and the net impact of automation, as described in the next section.
"However, people will need to find their way into these jobs. Of the total displaced, 75 million to 375 million may need to switch occupational categories and learn new skills, under our midpoint and earliest automation adoption scenarios; under our trendline adoption scenario, however, this number would be very small—less than 10 million
https://www.mckinsey.com/featured-insights/future-of-organizations-and-w...
The Millennials will be further discontented with our 'free enterprise capitalist model', with few exceptions by the 'winners' (Big wealth inheritors, 'lottery winners' and the very few truly brilliant, talent-gifted or pro-althletic people), as the economy enslaves them to higher risk occupations subject to transformation and job loss.
The industrial horse buggy whip/parts and early mass assembly of low-cost autos analogy will not serve as motivation for 40-something workers to relearn skills for fewer proportionent jobs.
1
@Bob Aceti
The question on the loss of that many jobs: What will the workers who lose them blame it on? Globalization (trade) or technology (job skills)?
And what will they do as a result?
I still believe the best way to create a robust, sustainable economy is to pump money directly and purposefully, into spending that feeds the real economy.
Not just the financial sector, which in my opinion is far too large.
Spend on infrastructure. Forget the public private con job. Congress has no need for private funds to pay its bills. It creates new money when it pays a bill. No need to borrow at all.
Go ahead the expand Medicare into an all powerful 'single buyer' universal medical care system. Congress can pay for it, like no one else can. Affordable tuition? Same deal. Name any popular policy goal, Congress can afford it.
If we are truly the world's richest nation, its about time we behaved like it.
3
Professor Krugman, a smorgasbord is a Scandinavian open-faced sandwich. It has a few things (think a Dagwood) but it mainly doesn't have a slice of bread on top.
You mean a tapas recession, full of stuff which combined won't taste very good. :)
1
To those who ask why things may happen close in time - go back to a basic probability course and you will find that just by chance if you wait long enough you will find a place where several events happened close by.
1
You’re really going out on a limb with that last sentence. Quite a wide time frame
Manufacturing is struggling now as it has the entire expansion. Mining/energy extraction has represented most of the growth in industrial production and the tariff hype has caused exports and imports to surge in the 3rd quarter. Which means even that sector will likely cool off in the 4th quarter.
RV manufacturers are in decline. Auto has leveled off. Most of the growth is west of the continental divide. The midwest is looking like the early stages of recession. The current Cali housing bubble has popped and data is still catching up as it always does during RE's downturns. This will suppress spending in 2019 and 2020.
Rentier finance still will push up paper assets, much like they did in the last cycle when the Dow surged from 11000 to 14000 despite worriesome credit issues building post-housing bubble. Peaking in June 2007 and still near a peak in October 2007.
Nonbank lending Paul, is the source of the credit expansion. Too many people are looking at banks, look at nonbank lending, it is getting ugly.
1
With Trade Wars, elected US Government politicians and their US Government career bureaucrats pick and choose the winners and the losers among US businesses and Unions.
This selection of winners and losers is based upon the established institutionalized political "Pay to Play" Chicago type procedures that are now required for doing business with the US federal government and or getting any US government action on any issue!
In any trade war, the nations that accumulates more (taxable) wealth VIA FOREIGN TRADE wins, and some nations go bankrupt by spending their existing wealth, plus borrowed money using their existing privately owned taxable wealth as collateral for Government loans, to pay for their nation's government activities lose!
The USA will probably lose Mr. Trump's trade war because the USA is no longer a taxable wealth creating nation, but is now a taxable wealth consuming (destroying) debtor nation.
US citizens are selling (or letting the government mortgage privately held US located assets as collateral for US treasury bonds) existing title to every privately owned national taxable wealth (businesses and real property) in the USA that was created by previous working generations of their citizens in order to pay for our government payrolls, entitlements, contracts and other government activities (plus our foreign made consumer products).
1
Nothing out there to cause the next slump? Let's talk about debt, interest on debt and how much of the federal budget it will soon consume.
1
Quick Q on Figure 1 and text that precedes it: Residential or Non-Residential? Thanks.
1
One recent "metric" that has arisen is the one stating how "46% of Americans don't have $400 in cash on hand to address any emergency that may hit them."
Has that metric been tracked over time to see how it correlates to previous recessions?
Because it seems like Trump's tariff-taxes might be a strong force to push that 46% number higher. And at what point (56%, 60% or more?) would it trigger a recession? When or where two-thirds of our economy GDP can no longer be powered by consumer spending.
9
Are we near the next stock market major adjustment? Are we near the downturn in housing starts? Are student loan debt about to bankrupt the recent college grads? Are retirement incomes failing to keep up with inflation?
Maybe sooner than we think.
Any one of these can trigger the others.
My choice is that student debt will end the boom in housing starts, that will start the ball rolling. As stock prices fall so will retirement income which will feed on itself.
7
A collapse in China could put the world economy at risk. The high debt in China, the extreme demographic challenges, and the challenges of dealing with massive over capacity all could trigger a collapse. Trump’s tariffs just make things worse. That’s the yellow light flashing
3
I will continue to put forth the notion that the oil price spikes prior to the onset of the last recession triggered the rapid recession. You might not be affected by the price of fuels but most Americans are. I claim the oil price spikes actually caused the housing crisis you claim caused the recession. Most Americans have an affinity to spend all their paychecks and take on debt. What about the guy who had to fill his tank to get to work before paying the mortgage? Do you see what I'm writing? The average Joe had to pay extraordinary prices for gas to get to work, mostly many miles now, and also pay high costs of heating the homes irregardless of what type of fuel as they all track high and low according to the price of crude oil which reached 147 dollars in July 2008.
I will continue to argue my point as an average American getting by on what money I get while holding debt. You have to understand the average consumer better to really understand the root cause of the last recession. I agree the mortgage payment problem and foreclosures led to business failures, but why I ask?
The price of oil tracks intimately over the decades with the relative health of the economy in a directly proportional way. Fortunately, the price of oil has been at an acceptable to all level for over a year now. It actually increased from a low of 20 dollars per barrel to now, near 70 dollars per barrel since Trump's campaign for office. The price of oil is stable for now.
We are OK for now.
2
Much more credible than the last recession Paul predicted, which was to begin the morning of November 9!
Ok Paul answer me this: WSJ just had article say there was no housing bubble. Instead there was a housing shortage. So everything that was done was wrong. Could you deconstruct that please?
1
Krugman citing Minsky? Now I have seen (read) everything. Keynes is spinning in his grave.
@chris
Professor Krugman has cited the work of Hyman Minsky many times; do a search of his blog at The Times (available as an archive).
If you go to Minsky's page on Wikipedia you will find the list of economists he influenced: Paul Krugman, Steve Keen, Nouriel Roubini, Victoria Chick, Stephany Griffith-Jones, Ha-Joon Chang, Michael Hudson.
Minsky wrote a book on Keynes, where the promotional blurb says:
"This reissue of Hyman P. Minsky's classic book offers a timely reconsideration of the work of economics icon John Maynard Keynes. In it, Minsky argues that what most economists consider Keynesian economics is at odds with the major points of Keynes's The General Theory of Employment, Interest, and Money. Both Keynes and Minsky refuse to ignore pervasive uncertainty. Once uncertainty is given center stage, they observe, recurring financial crises are all but inescapable. For Minsky, economic calm on Main Street engenders financial system fragility that, in turn, ensures a perpetuation of boom-and-bust cycles."
I don't see the basis for your comment.
... the fiscal stability of the US fracking industry
What happens if China starts dumping its pile of US Treasuries? Would it create a run into gold and out of the market? Maybe the precipice is not economic but a really bad political decision. We’re good at the “why’s” - not very good at the “when’s.”
3
@Goodman Peter - Agree with you comment. Plus...
How significant were the effects of Bernanke's Quantitative Easing when the Fed was injecting $80 billion a month into the system?
If China runs into trouble and feels the need to start cashing out its $1.8 trillion in U.S. Treasuries at a similar rate ($80B/m) would it have a similar opposite effect on the system?
It would take China two or more years to wind down their portfolio. And if they allocated those enormous amounts to fund projects along the Silk Road and form new alliances with those countries it might tip the balance of world opinion (the equivalent of consumer confidence) as to who they should see as the leader of the future: the U.S. or China.
If that sentiment swung toward China how many other countries might realign their investment strategies away from America? Especially when you consider how strongly President Trump has acted to destroy decades-long relationships with America's closest allies.
2
Dear NYT:
Political blogger and celebrity economist Paul Krugman keeps trying to talk our economy down, and to pin the blame on Donald Trump.
Who can forget his famous election night prediction that Trump's victory would usher in a "global recession, with no end in sight."
Krugman conceded his doomsaying was not immutable: "I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened." https://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016
Not so. In fact, President Trump's tax cuts, "fair trade" renegotiation and regulatory reform has produced a very dynamic economy.
A very wrong prediction, among many wrong predictions, all emblematic of a bias so deep it scrambles his ability to think "wonkish."
This professor is out to lunch. And is indeed dining on a smelly smorgasbord of bad economic theory, political bias and bubble thinking.
2
I will continue to put forth the notion that the oil price spikes prior to the onset of the last recession triggered the rapid recession. You might not be affected by the price of fuels but most Americans are. I claim the oil price spikes actually caused the housing crisis you claim caused the recession. Most Americans have an affinity to spend all their paychecks and take on debt. What about the guy who had to fill his tank to get to work before paying the mortgage? Do you see what I'm writing? The average Joe had to pay extraordinary prices for gas to get to work, mostly many miles now, and also pay high costs of heating the homes irregardless of what type of fuel as they all track high and low according to the price of crude oil which reached 147 dollars in July 2008.
I will continue to argue my point as an average American getting by on what money I get while holding debt. You have to understand the average consumer better to really understand the root cause of the last recession. I agree the mortgage payment problem and foreclosures led to business failures, but why I ask?
The price of oil tracks intimately over the decades with the relative health of the economy in a directly proportional way. Fortunately, the price of oil has been at an acceptable to all level for over a year now. It actually increased from a low of 20 dollars per barrel to now, near 70 dollars per barrel since Trump's campaign for office. The price of oil is stable for now.
We are OK for now.
The next down turn will occur when a majority of people start to a reflect on how they spend their time and money. While it be more of a parable, the tulip mania of 1637 comes to mind.
Collectively, we believe things are good and getting better and things are; we start to question our beliefs and things get worse (maybe college might be overpriced, maybe subscribing to 200 cable channels of content which cannot be watched for $100 a month is a bit of a waste)
Never mind the pools of pigs waste overflowing in the south and enjoy the cheap bacon (I refuse to pay 50 cents a lb more to insure proper waste disposal, besides it is too late).
Just listen to the Don and repeat, I believe, I believe...
Yup, it is a smorgasbord.
4
I will continue to put forth the notion that the oil price spikes prior to the onset of the last recession triggered the rapid recession. You might not be affected by the price of fuels but most Americans are. I claim the oil price spikes actually caused the housing crisis you claim caused the recession. Most Americans have an affinity to spend all their paychecks and take on debt. What about the guy who had to fill his tank to get to work before paying the mortgage? Do you see what I'm writing? The average Joe had to pay extraordinary prices for gas to get to work, mostly many miles now, and also pay high costs of heating the homes irregardless of what type of fuel as they all track high and low according to the price of crude oil which reached 147 dollars in July 2008.
I will continue to argue my point as an average American getting by on what money I get while holding debt. You have to understand the average consumer better to really understand the root cause of the last recession. I agree the mortgage payment problem and foreclosures led to business failures, but why I ask?
The price of oil tracks intimately over the decades with the relative health of the economy in a directly proportional way. Fortunately, the price of oil has been at an acceptable to all level for over a year now. It actually increased from a low of 20 dollars per barrel to now, near 70 dollars per barrel since Trump's campaign for office. The price of oil is stable for now.
We are OK for now.
2
@Waves of Brain - Most are also unaware of a significant event that happened in Arizona just prior to the housing collapse.
The local paper did an investigative report on all the home buying and flipping-for-profit schemes that people were running at the time. They found that thousands of people (many from out of state) were buying many houses trying to take advantage in the skyrocketing valuations and that a great number of those people were claiming all their properties as "owner occupied" or primary residences.
Remember that recent changes to the law allows a $500,000 tax free gain on the sale of primary residences every two years. What better way to make a ton of money without paying taxes.
When the story hit, the state reacted by putting tax scofflaws on notice that they would be prosecuted if they were wrongfully classifying properties.
That started an immediate panic and wholesale selling began as these investors fled the market and, in Arizona at least, that was what precipitated the mass sell off that followed nation wide.
Not saying Arizona started or was responsible for bursting the bubble, but it was significant in Arizona. One of the top three hottest housing markets driving the housing bubble.
2
@medianone - as an add on.
Some of those people who the local paper identified as out-of-staters owned many houses.
One couple from CA was on the county records as owning more than 30 houses. All were claimed as owner occupied / primary residences.
A few hundred such cases would have amounted to the dumping of hundreds or thousands of homes being dumped back onto the market as those investors sold in panic to avoid the county from coming after them.
Here are a few things for the next smorgasbord.
We’re running out of petroleum, haven’t found new stuff since about 2003. We’re burning reserves and fracking is simply producing what we already knew about. It’s like wringing a sponge and it’s expensive to do. Private equity is pouring money into the monster and losing it. That can’t go on. When the US spends more than 4 percent of GDP on energy we get recession. Look for rising prices at the pump. $5, $6, $7 per gallon is expectable as fracked oil makes up a greater percentage of the mix. The really bad news is there is nothing after fracking, because we are running out. What causes recovery is massive infrastructure building that leverages new ways to make and use electricity. The sooner we do this the better. We need to save oil for things it is essential for like making plastics and rubber and jet fuel.
4
@DenisPombriant - Continuing your thought line...
Currently there are companies trying to create V2H (vehicle to home) technologies where a combination of rooftop solar and electric cars become the standalone power source for home power needs.
Controllers that charge the car and run the house during daylight hrs automatically switch to use the cars' batteries to power the house at night. The car's batteries can run an average house for ~72 hours.
If such tech became viable and widespread, then millions of homes might start pulling the plug from conventional grid ties. Maybe not older homes that were built to interface with grid only, but certainly new energy efficient homes with the new tech in mind.
2
Dear PK,
How about the obvious notion that in all things their is a point of diminishing returns? A point at where continued trajectories begin the demise of the returns on which they were initiated.
You, and your fellow economists, base your projections on models that rely on growth, ever expanding economies and populations. No where is there any evidence that you can see a point where growth becomes impossible due to limited resources. Every respectable report on the condition of our planetary environment contains evidence of the rapidly increasing rate of degradation of planetary health. And still you chose to ignore the law of diminishing returns. It is quite possible, probably even assured, that it is to late for humans to make the attempt to evolve into a sustainable economic model for the future of our existence on this planet, but it is not to late to recognize the necessity for change.
4
I'm not an economist, but isn't it obvious the next downturn will come from the debt incurring by the tax "cut", and Trump's trade wars?
5
Modern civilization depends on massive amounts of low- cost energy. Without it, humanity would be back in the Dark Ages.
Modern civilization has evolved to its present state by consuming enormous amounts of cheap, accessible fossil fuels (coal, oil, natural gas).
Now, each of us eats about 2,500 calories of food daily, equal to a 120-watt light bulb. In modern civilization, on average, each human in the world consumes 2300 watts of primary energy, daily, almost all from fossil fuels. That’s 20 times as much as we eat. On average, each American consumes 10,000 watts of primary energy, 80 times their food energy, and 4 times the World average.
Modern civilization cannot keep functioning forever on fossil fuels. If climate activists are right, there will be an environmental catastrophe. If climate deniers are right, we won’t experience catastrophe. However, the supply of cheap, accessible fossil fuels is finite. At some point, decades ahead, not centuries, humanity will begin to run out of affordable fossil fuels, and modern civilization will economically collapse.
Humanity must develop and implement major new energy sources that can provide low-cost energy indefinitely for a projected world population of 10 Billion to avoid environmental catastrophe.
I recommend an international policy response to preempt the predictable loss of economic output and destabilization that will result from a wilding climate by assessing all nations to develop new energy sources.
5
I found this one as a comment for this column me making on October 2014 , " a constraint, as for economic reasoning, would not imply a constraint on growth but a constraint on total utility.let's assume..consumption probabilities for a given income..(if high enough also in constraint conditions, being able to match income) if such like a river..where constraint would imply only a direction change. given freedom of choice as a maximum for utility, that's exactly what we wouldn't have.but..on the other hand, the planet could be saved..?!", "some additional notes: i) assumtion for the case above,'in short term, utility can't be substituted.' one may change the consumption option,may or may not remain on the same level of economic activity,but in that case with less utility. (may or may not: would be balanced +, - in the savings account. for that case or in some indvidual cases, maybe could stimulate even growth.) ii) another assumption: technology for the substitution of utility would be an arbitary development or contolled through policy. iii) constraint here is somewhat tricky: whether due to 'limited resources for input' or due to 'standards policies for combating climate change'. both appliable, as I guess. iv) (taxing carbons emmissions would be a 'in frame' solution.) v) a fact of life: probabilities can be much higher than measures in total. vi) we face constraints (which affect utility in negative terms) in life, and mostly aren't aware of common poverty caused through."
"a question, 'how far is shortage an economic problem?' actually it should be regarded as a crisis, and such are temporary in general. can the science economics be responsible for poor technology?-probably no..but economic policies can be!
current mood:
i)regarding a constraint rooted to limited natural resourses for growth was a too early and probably wrong prediction.
ii)ecoomics can't develop technology for energy efficiency but recommend taxation."
@james jordan
Modern civilization is not propelled on abundant cheap energy alone. It is the utilization of that energy to exploit the earths resources that spells doom for modern civilization. All of the cod in the sea could be extracted from wind driven boats, but it would take an extraordinary number of them to do so. While man relied on wind for ocean navigation they still managed to bring about the near extermination of certain whale species. But it is cheap energy that has allowed us to bring about the extinction of half of all known life species that existed 100 years ago in just 100 years. The changing climate certainly had a part in this, but it is the human caused environmental changes that is the larger culprit. The clear cutting and burning of forests, draining and poisoning of natural watersheds, depleting of water resources accumulated over eons of time, converting diverse ecology's to homogenized ones, all accomplished with cheap energy. It is more probable that cheap energy is the bane of mankind.
4
militating against the smorgasbord is the rising redistributary flow of boomers retiring and spending down their pensions and savings, plus all the medicare money that is going to flow through the economy as they age out.
plus all the inheritances of whatever remains to the millenials.
next recession might not come until 2030 maybe.
For all the motley reasons why the next recession would be a mixed bag, I am not sure why stocks have been highlighted in a light hearted manner.
Is there any reason to believe that buy backs could be the only driver of stock prices? If most U.S. multinationals derive 60% of their income from overseas units, is it possible that there would be no impact from trade wars or are we saying that trade wars are internationally neutral? They are not.
1
The middle class has not had a real increase in wages since the 1960's. They sold off all their assets in the 70's and 80's, no more middle class vacation homes and family vacations. They borrowed on their credit cards in the 90's until they went into bankruptcy. They mortgages their homes in the 00's until they lost them in the 2009 housing crash. They cashed in their savings and 401 K's just to survive. When the next downturn in employment hits, as it inevitably does, they will have nothing left to sell but their souls.
If we want to prevent the complete destruction of the middle class we need to get them a pay raise as fast as possible, certainly before the next recession; however, it is probably already too late for that.
9
Could it be that all these slumps have a common cause? That would certainly make Occam's barber happy although it might make economists unhappy as we would have less need of them to elucidate the complicated reasons they have to explain recessions.
I dearly wish I could post a graph here, but look at slide 6 at
https://www.slideshare.net/MitchGreen/mmt-basics-you-cannot-consider-the...
Then read slide 7.
Slide 6 is a graph of the private sector's surplus or deficit as a percentage of GDP from 1953 to 2910 by quarters. Slide 7 points out that the graph does DOWN in the period leading up to each recession (which is marked as usual on the graph by a grey bar).
You might also want to sneak a look at slide 5 which graphs both the private sector surplus/deficit and the public (federal) sector's surplus or deficit. You might note that as one goes up, the other goes down.
Of course, that might lead you to conclude that federal deficits have been good for the economy which anyone who has discussed finances around the kitchen table knows is just nonsense.
3
@Len Charlap - Nice comment Larry, and it's a great service to illustrate the point with the slides as you have done as well. Be careful with sarcasm such as that in the last paragraph though, because there are far too many people, and even a few newcomers to this NYT forum, who might take it literally. Btw, I never meant to misspell your name "Lynn" a few months ago, but I noted the error a little too late, and long after comments were closed on that column. Lynn Swann, the great Pittsburgh Steelers receiver was part of the reason I spelled it that way, but again, I know the correct spelling now, even if you never noticed nor took any offense from the mistake.
2
Errrr, I meant to address Len and not Larry in the previous comment - sorry, but I'm squeezing these comments in between classes !
2
Thankfully, I have no children who are deep in debt for their educations which may never get them employment to cover that debt.
So two things worry me:
(1) The vast amount of student indebtedness of one or two of the generations.
(2) What are the unintended consequences of Trump's trade "wars"?
Could it be that these two will be the "trigger" for the next serious recession?
3
@Fred - Yeah, actually any kind of debt in the private sector is deadly if it gets too big and student debt certainly qualifies. There was an increase in private debt before each recession since at least WWII.
4
@Fred - What is the status of students being able to use bankruptcy to rid themselves of student loan debt?
President Trump has used bankruptcy many times and should personally know what a great tool it is to prevent personal financial ruin.
Maybe the President will push Congress to ease any existing impediments for students to take advantage of bankruptcy so they can move on with their lives free of debt.
1
The start to the next recession part sounds right. In terms of severity its actually possible that in a year with FF at 3% could be less severe than in two years with FF at 4%. In 2008 the reason the severity was so bad even reaching the zero bound and despite QE was the amount of systemic leverage and what it did to subsequent money velocity. All that QE sat on BBS as excess reserves doing nothing for the economy. Right now systemic leverage is modest - CLOs and leveraged loans are flashing yellow, mtges are early cycle, sub-prime auto is yellow, nothing is red. In a year CLOs could be red. In 2 years I'm pretty sure everything will be red because lenders and the system has learned nothing of a counter-cyclical nature. Let's get this one over before everything is red.
3
@Eb - was the "amount of systemic leverage" you speak about similar or connected to the changes in net capital rules that occurred when Paulson of GS and other investment bank CEO's successfully lobbied for relaxing them?
Without a shadow of a doubt, talk of a recession will beget one. Sharma wrote a cool article about unforeseen causes of an imminent recession a few hours ago, now the good doc says the same - both refer to over-leveraged private equity and the market priced as if there were no risk.
We know.
But, you are not supposed to be expressing your befuddlement. What is with this: 'we don't know when it will happen, we don't know why it will happen, we don't know how this will happen, but it will happen.'
I flunked all my econ courses, and math/stat courses, and bombed the time-series courses, and I can say the exact same things you say in this article, doc. Like, "the shoe will drop."
After reading two economists speculate, I heard it drop. Distinctly.
I am readying for the mindless amplification to follow by empty talking heads on TV and radio. "Buy, buy, buy," now replaced with "sell, sell, sell, buy gold, bitcoins, and Trump coins."
Then it really happens.
Nocebo, anyone?
Tell healthy patients they have body ache, brain damage, and early onset dementia - and pretty soon we've got all the physiological symptoms.
Thanks for nothing doc.
Egad – believe you’ve just broken new ground for lands and landed with soon-to-be broken economics...
A masterpiece of marginal economic behavior – a postulate of psychonometrics...
A “greater Grinch” theory...
Will alert the Swedes – though they may have trouble disbursing the ten million Krona for an award next year...
Unless you’ll take it in smoked cryptocurrency...
Think this is what (doc) Krugman got the Nobel for – opened up a whole branch of ArabSpringWater monetary theory...
Oops, wrong columnist...
(would post a correction in italics, if available)
PS
If someone would just pay me $15/hour and shift-differential for this stuff, would be more careful...
PPS
If that isn’t marginal thinking – don’t know what is...
1
Nothing to worry about. The 1% will be fine.....the other 99% will pick up the tab.....painfully!
2
Nobody can deny that egregious tax cut(s) for the rich, foolish stock buybacks inflating the stock market, high levels of corporate and consumer debt, rising interest rates, and tightwad stagnant wages will make a perfect storm for a financial crisis, but this time at least 60% of the American public will not recover.
4
I dont know when or the cause of the next recession but I can guarantee you the republicans will be blamed for it!
@greg
And deservedly so.
3
Tariffs are slapped on China under the guise of punishing them.
The US importers pay the tariffs into the US government coffers, the price increase is passed onto consumers. So, the US consumers are paying a tax into the US government coffers, Trump boasting he's collecting billions from China. Average folks need to realize that their government is taxing them under this guise rather than cheering the tariffs at pep rallies.
3
Anyone who believes the business cycle is a thing of the past is naive beyond belief. Part of the business cycle is precisely "after a long period of stable growth, lenders and investors get complacent, and the private sector overreaches" plus businesses grow less efficient, hiring more people that they really need.
The only other point to emphasize is "Most modern recessions have had clear narratives, at least after the fact." Emphasis on "after the fact". Next could be any or all of the things mentioned, plus things nobody is thinking of.
I'll venture one more: ballooning federal debt and consequent loss of confidence, particularly if congress or the president does something really stupid.
2
@Bill White - "ballooning federal debt and consequent loss of confidence,"... could loss of confidence be amplified if China were to start selling $80B/m of their U.S. Treasury holdings? Almost like a reverse Quantitative Easing?
1
Don't forget student debt and unfunded pensions.
6
At the risk of sounding apocalyptic, I am going to predict that the next recession will be triggered by civil unrest. The foundation will be shaky, as Dr. Krugman eruditely describes, but it will be Trump and his acolytes not going quietly-in-the-night that will light the keg. Most of us are reasonable people and reasonable people are all beginning to see Trump and for who he is, an abomination, a blight on our history. He and his enablers in Congress will get voted out but Trump will claim it is a conspiracy, the "Dark State" (cue the dun-dun-dunnnnn). He will continue to tour and getting completely unhinged, incite violence. We will get it under control quickly but the shock-waves will undermine confidence and consumer spending will drop precipitously. On a positive note, the rest of the world will breath a sigh of relief and lend a hand.
3
Where is the next recession/depression coming from? From Donald J. Trump and the Republican Party.
- Leveraging the American Dream by passing a massive tax break to corporations and high net worth individuals thereby reducing government revenue and redistributing middle class and lower class income to the top 1% when Americans need more help than ever to just make ends meet;
- Increasing the federal debt thereby reducing the flexibility to right the soon to come sinking economy (oh, my, what ever happened to the "Boehner Rule"?) ("Nobody knows more about debt. I'm like the king. I love debt." — DT May 2016)
- Starting trade wars with our North American friends and European allies;
- Starting a trade war with China that in the end will do nothing but increase prices for all of the goods middle class and the poor need (the 1% can afford some inflation - until their Jaguars, yachts and jets cost too much even for them);
- Disrupting world markets and economies with ad hoc, impertinent and manic policies
This will all come home to roost in higher inflation, negative growth, loss of jobs and economic shrinkage. The smallest catalyst (like, China dumping even a portion of $1.1T US treasury securities in retaliation to Trumps tarrifs) will be enough to make Americans wish they'd never voted for an arrogant, narcissistic, idiot for President in 2016.
8
Q:
What do you get when you cross commercial real estate with a gig economy...
A:
https://www.bizjournals.com/newyork/news/2018/09/18/wework-is-now-larges...
Q:
What do you get when punch-bowl sellers and barbers start accepting cryptocurrencies – and talk up their excitement to their customers
A:
Punch-bowl sellers and barbers hanging signs on their windows, reading...
“Your money’s no good here”
...and customers thinking – momentarily – free punch-bowls and free haircuts. as far as AI can see
PS
No such thing as a free punch-bowl...
Free haircuts, another matter entirely – though you need to see your banker, not your barber...
As Paul correctly states – several reason for this....
Match THAT, microeconomists, for evidentiary opinion. Wonkish FUN, I say.
After all of the Trump cuts, and masses of voters finally catch up to him with finger pointing blame, the next silver bullet might be orchestrating a smorgasbord of socialism in the White House. That in itself could be a side dish of recession, bringing markets back down to earth, and depressing investors. However it could also usher in an age of restoration of domestic programs geared toward helping the elderly and disadvantaged, and maybe even food stamps for the starving. . Though the markets will stagnate with no new news about tax cuts to perk up corporate ears, licking the wounds of mismanagement and domestic neglect theme caused by Republicans could create the atmosphere for a domestic smorgasbord of work programs geared toward reinvigorating the domestic infrastructure. It could almost be like a milenial FDR era ahead. Creating jobs to restore the infrastructure would get many families through the toughest of recessions. Counting the backfires of this soon-to-be-gone Republican era will be a big deal, as new investors increasingly ponder the solid blue chip aspects of merged Marijuana stocks, and a new age of value investing, along with dividend stocks that the public prefers.
3
"So, no one overarching narrative"
No one economic event has ever been studied as much as the Great Depression.
Few saw it coming, and fewer still were agreed on why it was coming.
Afterward, there were overarching narratives all right, many of them, mutually contradictory. Even today after all the study, you could take your pick of several that are cannot all be the overarching narrative, because they contradict each other.
Economists have the same problem as intelligence analysts about the future and historians about the past. There is too much information. The narrative emerges as much or more from what must be left out as from what is included. You just can't get it all in. It is too monstrously big.
So if we don't know what is coming, that is normal, inevitable even. Afterward, we won't know what hit us either, though we'll have fascinating disagreements about that.
10
"The Fed cut rates by around 5 percentage points in the face of the 1990 recession, and still got a jobless recovery"
Not true. It got jobs, they just were not jobs in the US. That is the era of globalization making a worldwide labor market for manufacturing of things sold in the US.
It is misleading to use national borders as the limits of the jobs created, when in fact the jobs created sold across those borders with total freedom.
The recovery created lots of jobs -- in China that time.
15
For a great many of us the recession never ended. We lost jobs, homes, nest eggs for retirement, our health, and our faith in the future as being better than the past. The tax overhaul that the GOP pushed through lowered revenue for every level of government and that means that the next recession will will be worse than it needs to be.
The fixation that businesses have on deregulation as soon as they've made back what they lost ought to be ignored by our lawmakers. Businesses rarely self regulate to the point where they aren't making money. What they do instead is imitate whatever corporation in their field is making the most money no matter how harebrained the actions are.
We, the consumers, wind up bearing the brunt of the recessions caused by business overindulging in schemes to keep as much money as they can. The same goes for the rich. They rarely pay for their foolishness. We do.
Here's a thought: instead of cutting taxes on the corporations and the richest, how about raising them so that when the recession comes there is a pot of money to spend. It beats neglecting the country.
17
@hen3ry
But, we the consumers, are part of the problem too.
We keep feeding the beast. And the beast keeps asking for more.
We've all been brainwashed and can't quit.
Greed in fact, is not good...
- and the other day the NYT reported about North Las Vegas -
(infamous ''Ground Zero of the Housingbubble)
And there we have a pretty good indicator (again) - for:
When will it happen?
When in the northern part of the gambling capital houses (again) ''appreciate'' 20 to 30 percent in just one year.
Then it ALL will collapse again - in order that speculators can gobble up the foreclosures (again) ''for peanuts'' - and sell -or rent) the houses afterwards for outrageous profits!
3
I heard a stat the other day that 51% of American families live from paycheck to paycheck. I would assume that excludes the poor who don't have paychecks. That's a lot of people. There are probably more people falling out of the middle class than clawing their way in. Democracies depend on a strong middle class. A tax cut for people who don't pay income taxes is no tax cut at all. But Republicans have a solution, cut Medicare, SS, & Medicaid.
24
@dbl06
How can you say that the poor don't have paychecks? Really? I certainly don't have statistics in my head, but the NYT is constantly running stories about everyone from singles to families trying to survive on scut jobs and paychecks.
The poor are not sitting around watching big screen TV supported by taxpayers.
The '90-'91 recession was indeed interesting. In Southern California (at least), it precipitated a housing crash after which prices (residential) fell until '96-'97. That was a long decline, but the result was a fall back to about'88 prices.
At the time, I saw it as caused by losing one of the three pillars of SoCal economy--the decline of aero-space and defense after the collapse of the Soviet Union.
The other two, construction and finance took a hit too but the Fed started lowering interest rates and mortgage refinance was a hot business.
I have been waiting for a recession now for some time. After I read that Australia hasn't had a recession in 25 years, that started me thinking about the business cycle.
My understanding is that recessions are caused by shocks no one has anticipated that cause, first, a pause in deal making. When that stops significantly, businesses pull back, lay off, and purchasing is curtailed.
2
Two factors are ultimately behind nearly all recessions, collapses, depressions...and they are related of course:
Endless greed, and markets and individuals are largely emotional, not rational.
These factors lead to too much debt (and other risky bets). There's too much debt held by gov entities now world wide, and too much in the corporate sector.
One example:
The IMF estimates China's overall debt today to be about 234 % of GDP -- (the US figure is 105% of GDP -- the Fed gov. and nearly all states are debt burdened as well) -- and the IMF further predicts China's will rise to 300 % by 2022. Corporate debt is also enormous and shadow banking is big there too. It's all going to collapse at some point and the global disruption will be enormous.
A collapse is coming, it's inevitable. As always no one can predict when because the whole system is rigged. But get ready for a sever recession and of course a bailout for the wealthy via QE II.
4
@dre - Regarding "no one can predict" when the collapse is coming. It brought to mind W. Bush's second term when he famously stated he was going to "spend" some his considerable political capital on privatizing Social Security.
That was the next big Holy Grail in wholesale greed. The housing bubble had run its course and squeezed for every ¢ possible. And it appeared that the big boys were waiting to see if Georgie could pull it off.
And when the idea was slapped down, it was as if that was the signal to pull the plug, take the profits already made in housing, and start the newly reinvigorated short selling (after SEC abolished uptick) where billions more were made as the system collapsed and Uncle Sam bailed out all the big players with taxpayer dollars.
When W's privatization scheme failed, it was like someone stopped the music (ie: musical chairs).
1
A very interesting perspective. Yet I would like you to give a perspective on what might be the potential economic impact if China run out of US imports on which to impose additional tariffs.
@Victor - Once they run out of US imports, they could start selling off their U.S. Treasuries.
I swear this looks exactly like the report from my advanced macroeconomics class in college. I was looking at a different decade but all the same metrics were there. I generally agree with Krugman's assessment now except for two points.
1) Fiscal policy has also lost leverage since the last recession so we're in double-trouble when the Fed can't scrape us off the subway floor again. We were fiscally anemic in the middle of the recovery only to dump an obscene amount of the budget on tax cuts without accomplishing much of anything for people who don't own stock. Meanwhile, we don't have the uptick of technology and productivity gains to soften the blow this time. Call it strike three.
2) The world has changed since 1991. We're looking at a very US-centric view here. Krugman is envisioning a series of intermediate bubbles. I'm envisioning a series of dominoes. I don't know where the first one will fall but the die won't stop falling until we've circled the globe a few times. Maybe the collapse will stay relatively small. However, there's a big gap between 1991 and 2008. I believe the global economy will find a way to fill some part of that gap.
3
Unbridled greed at every level will start the next recession since the flood gates are open with less regulation.
3
Paul Krugman's correct financial prediction ratio stands someplace between 27% and 36%, depending on how you categorize a "financial prediction". Hardly the stats for a guy who once said that "I'm right about everything".
Better results would be obtained by flipping a coin.
2
@Steve Predicting the whole economy is easy. What goes up, must come down. What goes down, must come up. That one has a long track record of batting a thousand. So I'm with him on this one regardless. Just before 2021 please.
1
''after a long period of stable growth, lenders and investors get complacent, and the private sector overreaches''.
- or let's say:
WE haven't learned anything from the last Bust and everybody is into gambling and speculating again - and this time - as you rightly write - not only with housing but with everything which seems to offer some high returns?
And about when will it happen?
I have no idea.
After the midterms when the gamblers and speculators will realize that the ''Fake'' Trump-Boom is over - and everybody will leave the Burning Casino at once -
BUT don't worry it only will be ''another correction'' the Rich Mans Economy will treat just like another ''speed bump'' on their way to even more Riches while - again - just ''the Poor'' and ''Average Americans'' will have to pay for it.
3
I think a recession is on the way. I've been working in the RV industry for about 40 years. RVs have always been a leading indicator. Nobody needs an RV. When the future looks shaky, people stop buying new RVs.
Thor Industries is the world's largest RV manufacturer. Their stock has gone down about 40% in the last six months. Lippert Components is a major supplier to the RV industry with annual sales of more than $2 billion. Their stock price is down about 40% over the last six months.
RV manufacturers and suppliers are cutting back and laying people off. This is not a normal seasonal downturn. Even engineers are being let go. I was one of them.
52
@Dave Coyne,
Sincere sympathy but thanks for the heads-up!
2
@Dave Coyne
As we travel around we notice that RV sellers have huge inventories. We often comment and wonder how they manage to do it.
Baby boomers who are retiring buy a lot of RVs. It seems as if we see more of them on highways.
We had a 5th wheeler until two years ago and noticed that it was getting harder to make reservations during the winter in the south.
If people are having a tough time retiring, it's unlikely that they can afford an expensive RV. Gas prices also enter into the equation.
The Great Recession had a terrible impact on Elkhart, IL. I think you are correct that what's happening in the industry is a warning. If there is another recession, or when it happens, a lot of people will lose the RVs they purchased on credit even though some retirement income is protected from the loss of jobs.
2
@Dave Coyne
Winnebago Industries has also dropped a similar amount this year.
1
Cost of housing, healthcare, and food away from home as compared to income are too high. Population is not growing fast enough to stimulate considerable product demand and service demand growth. Employers will continue to base wage increases on government CPI data so that real wage growth remains less than real costs of living increases.
Hope that Krugman will study the interdependencies of these (and other) factors closely and write about them here.
For example, as employment increases and work commute times increase, demand for more convenient food increases. However, Nielsen and USDA report that food transactions at restaurants is at a 28 year low. (This includes fast food, fast-casual, casual dining, and fine dining establishments.) Indicators suggest it is due to the cost of restaurant food. Restaurants are attempting to operate with fewer staff.
Similarly, movie theatre tickets sold continue to decline and entertainment audiences continually attempt to reduce their at-home spend for cable and OTT services. Advertisers are being more cautious with media buy spend. Fewer entertainment projects will be made if no one is willing to pay for them.
2
@Jillian Alexander
You do a good job explaining the environment workers face. Margins for workers are tight. And to get ahead, or stay above water, personal choices become more important than ever.
Small things! Make you work lunch instead of eating out with co-workers. Bring a thermos rather than hitting Starbucks. Car pool if possible.
Cutting back on entertainment fees, pay off the car, cut vacations, learn to cook all your meals from scratch.
Just those small things add up to giving your self a raise. And will help you stay afloat, or if lucky, start moving ahead.
1
America has to grow. There is no option b. Since current account deficits imply also liabilities, in order to compensate such in a sustainable manner, America has to grow steadily. Financing imports is a banking sector issue (not talking about final consumer goods). Any liabilities are to be repaid, if this is a finance issue, the banking sector has to be regulated on purpose. Always bearing in mind that protection on final consumer goods is the most likely way to face counter-protection. Regulation as much as required, as much as necessary for compensating liabilities due to trade deficits. In order to minimize such, America has to grow. There is no option b. Velocity of money circulation is a key issue. On the other hand, there has to be a baseline protection for making fiscal policy in open economy conditions feasible. Such have to be determined while considering a wide range of externalities for slowing down at minimum. This could be a way out. Mistakes while compensating liabilities due to foreign trade deficits could be a source for recession. Not necessarily. America has to grow. There is no option b.
@m. Mehmet Cokyavas -- Use of resources cannot keep growing. However, the more efficient use of resources can grow on and on. The need for growth and the limits to growth tend to be at loggerheads, when in fact there is every reason they can both be done.
9
To @Mark Thomason -- Having not detailed insight on the US economy, I just could make some initial remarks."Efficient use of resources" can be in many cases the result of "experience"/"sophistication" which requires some time. Free trade on the other hand promotes specialization. If there is an imbalance, there are two options : a) surge, b) wait until recession comes along. Yes, a surge could take into account potential efficiencies in industries. This would be an externality. But one should also take into account that "efficient production" is something which also occurs with time.
The idea that interest rates must be raised in order to lower them in the event of a recession is absurd. It is the equivalent of saying the only purpose of interest rates is to be lowered.
The reason to raise interest rates is to strengthen the financial system. It creates stronger surviving companies and avoids financial bubbles.
Also, I question the graph about the decrease in cold war defense spending. I suspect it does not include the significant portion of the defense budget going into private companies.
2
The Shiller PE Ratio, to which I have learned to pay attention, is at a level exceeded only once in history, in early 2000, and is double the level it was on "Black Monday" in 1987. I'd say stocks are more than "fully priced". And I'd say economic growth sufficient to justify the current ratio is, um, rather impossible, no matter how many regulations are rescinded, and no matter how much taxes are cut. But, party on.
23
@Michael -- Perhaps it is not economic growth, but profit growth they are looking to. You know, taking more of the pie for the top. They've been very successful at that for a long time.
5
Except that there is a massive bubble in the wings.
That is the gigantic pit of local and state employees unfunded and unfundable pension and health care cost obligations.
We are headed for decades long period where local and state governments will have no choice other than sharply raise taxes, cut spending or both in order to fund their pension and retiree health care funds.
Think about what happened in Detroit being replicated dozens of times/year for the next several decades.
It will freeze the muni-bond market. It will squeeze out economic output, etc.
My best guess at the timing is that it starts in 2020 just as the economic bump from the tax cuts and foreign earnings repatriation wears off.
It will be a massive squeeze.
8
@Baron95
Correct.
And the most interesting development will be if the Federal government will break with the 1840's precedent not to bail out irresponsibly acting States.
8 States and the territory of Florida went bankrupt but after 2 years discussion Congress refused a bailout citing moral hazard.
2
I would like to point out to others that economists are better equipped than us lay-people to predict economic trends but they cannot actually see into the future. Looking to the past is instructive though, and there are many reasons to believe that we are heading for a correction in many economic sectors, which could add up to a recession. I am tend to believe that some of the economic indicators we talk about have grown artificially. The stock market in general as well as some high profile individual stocks have surged since the election, but why? Consumer confidence has grown since the election but this doesn't seem to be based in any actual substance. It is very possible that a correction in either one of these would cause a slowing in growth, but maybe not a full blown recession Could these factors lead to a recession or is it possible that these indicators will hold?
1
Historically, the larger the bubble, the worse the economic disaster that follows the inevitable bursting of it. And most if not all bubbles are driven by either speculation or excessive debt, or both. The Great Depression was preceded by rampant speculation and margin debt in the stock market. The Great Recession was preceded by reckless mortgage lending. The tech bubble was fueled mostly by irrational speculation. And so on.
Currently there are few signs of any major speculative bubbles. But consumer debt, especially credit cards, student loans, and auto loans, is rising at a rapid rate. Although these sectors are much smaller than the housing sector, they are still large enough to cause real economic pain when they falter.
But perhaps the greatest danger is our massive and growing federal budget deficits, now approaching $1 trillion annually. Clearly this trend is not sustainable. And the cost of such recklessness has been masked by unusually low borrowing costs during the past ten years. Now with interest rates on the rise, we will begin to feel some real pain as debt service consumes an ever-larger portion of the federal budget. Ultimately, we will face a day of reckoning with respect to our national debt. I dread that day.
4
I think raising rates to make room for future cuts IS a big reason to raise rates now before the next crash. It's almost like saving money to pay a future bill, and the Republican tax cuts of '17 will probably be that bill as were the Bush tax cuts of '01 and '03.
2
I wish the NYT would hurry up and hire a progressive economist:
- Krugman, at least until recently, was adamantly against Medicare for All, yet our massive-and-rising healthcare costs pose a daily life-or-death dilemma for far too many of us;
- Our historic levels of income inequality don't merit a mention in his latest column -- how can you NOT include it in an essay on potential contributors to a next recession?
- Krugman says our employment #'s keep rising, but he fails to point out that most of those jobs don't pay enough to cover the basics, and that too many people have to work two or more jobs just to get by. And what about elderly people who can't afford to retire? How are they reflected in your rosy perspective of current employment?
Along similar lines, it was just last week that I read a wonderful op-ed in the Times on how woefully out-of-date our metrics are for measuring our economy -- and our measure of "real employment" was one of those metrics.
I could go on... I'm no economist -- I'm sure that's obvious! -- but it's high time the Gray Lady hired an economist progressive enough not to bristle at such ideas and criticisms -- and to give Krugman's decades as The Times's chief economist some much-needed competition.
Also, please ensure that such an individual, should you hire them, is not a multi-millionaire such as Krugman -- we need to hear from more people who can relate to what real life is like on the ground, with the rest of us.
21
@Thomas D.
It is not Dr Krugman’s job to carry water for progressives. Are you you blaming Dr. Krugman for our health care ills?
As far as “medicare for all’ issue”, he expressed support for universal health care coverage many times. However he is realist and knows it would be very difficult to achieve in one big swoop, and easy to demagogue on campaign trail. Itwould be much easier to achieve this noble goal by-step-by step manner, first adding Public Option in Obamacare, and then, when public sees that it works fine, merging workplace insurance under the Public Option.
3
@Thomas D.
1) This was a column about what he thought might trigger the next recession. PK has written a great deal about the increasing income inequality. But we have had increasing income inequality for 40 years and have not been in recession all those years, so clearly income inequality by itself is not what triggers recession however horrible it is for our long term security as a nation.
2) PK has always been for some sort of universal coverage and has written extensively about how Denmark and other countries manage this and how bad it is that we don't. But you are confusing supporting candidates with supporting every single one of their positions. While voting for Bernie in the Dem primary, after careful evaluation of Hillary v Bernie, I decided Hillary was a better candidate. But I always supported some sort of single payer medical care. I did not think politically that enough people supported it that it was the best issue to press at that election. Clearly I was right because huge numbers voted for Trump and Republicans who wanted nothing better than to take away even the very inadequate ACA, which I am opposed to removing UNLESS it is immediately replaced by a single payer system. PK supported Hillary because he thought she was the better candidate, not because he was against single payer systems. In fact, the Bernie supporters were totally on PK's case because they pointed out that PK had always supported single payer, so why wasn't he backing Bernie.
1
@Thomas D. - You might want to look at
http://www.slideshare.net/MitchGreen/mmt-basics-you-cannot-consider-the-...
and
http://www.slideshare.net/MitchGreen/its-what-you-know-for-sure-that-jus...
These are the slides for lectures by Stephanie Kelton who is an economist at Stony Brook. I think you may like her work. One of her proposals is that the country provide a decent paying job to everyone who cannot get one. She has plenty of data that shows the economy works best when people are working and earning so they can buy stuff which then provides jobs for people to produce stuff.
2
Personally very wary at present.
My ultimate tax liability is unknown at best as the rules are yet to be fully released. As my CPA advised earlier this year, the TCJA looks bad for you. But not much more insight yet. Clients who export have cut orders, tariffs? (exports pulled forward?) strong dollar?
Nearby businesses are slow or on a roller coaster- busy, dead, busy.
4
“ When will the next recession hit? I have no idea, a few years at most”. Uh, thanks Paul, now I know why they pay you guys the big bucks. You’ve solidified my theory, spending a lot of time pouring over financial arcana, buying numerous books on the subject, ditto reading newspapers, even the Times, puts you in no better position to gauge the market nor the future than had you done nothing. The old adage “stick to your knitting” seems to be more relevant than ever except to those who make a living writing on the subject of the economy. Case in point my best friend inherited a few stocks from an elderly gentleman twenty five or so years ago, knowing nothing of the market and more interested in buying shoes than spending money on reading material concerning economics has served her well. She does absolutely nothing as her portfolio has more or less kept up with inflation(Except housing in the crazy Bay Area), where as I who had at my disposal, (clients and friends), a couple heads of a mutual fund, several CEOs and founders of Silicon Valley Companies and well you get the idea, twenty five years later I am down to one third of what I once had, admittedly living off the cash to which I retreated after a good friend and president of a bank recommended I avoid stocks and bonds because I couldn't afford to lose it even though at 65 I had a mid six figure net worth at the beginning of the depression.
Bottom line unless you’re rich don’t retire and don’t bother with the news.
6
I actually do think we are in a tech bubble. We have companies with massive valuations and no actual products, like Facebook and Amazon. At some point, that shine has to wear off, as customers tire of in fact being the product. Apple sells commodity products at inflated prices. How long can that go on? There is a lot of ultimately unsustainable nonsense out there.
22
Don't forget that we are unlikely to be in a position to fiscally stimulate our way out of the next recession given our deficits created by the corporate tax cut.
26
Life death, nobody knows the hour or the day of the next recession, only that it will inevitably come. The causes of a weak economy are well worth analyzing, but I am much more interested in solutions, and unlike the human soul, we know beyond a doubt that economies recover from recessions, if and when government does its job. As Keynes, Professor Krugman, and anyone who has studied either knows, a recession is precisely the time to ramp government spending up, and the worst possible time for savagely cutting back.
Most Republicans had known that even long before Reagan began setting new records in deficit spending, and we can always count on them to spend plenty on the military, and even more on giveaways in tax breaks to the wealthiest of people and corporations needing support the least, but the only thing almost anyone else can count on is ever more brutal austerity – indeed, the only thing conservatives truly believe in “conserving” are their own business interests and political hides. As JK Galbraith once said, in so many words, Republican philosophy is essentially that poor people have too much money, and the rich, not enough of it.
13
Dr Krugman's observation that it is difficult to spot a single outstanding weakness is correct, but it is not difficult to spot a broad category, i.e. debt, excessive and mal-distributed debt. Here we could generate a long list of areas that are on thin ice: an entire generation of students owing well more than a trillion, an entire fracking industry based on debt and unable to show actual profits, enormous amounts of US debt held by less than friendly foreign governments, pension funds that cannot possibly meet their obligations, and to cap it all, a new tax law that pushes the wealth upward and the debt downward, where there is no ability to pay. In summary, the current structuring of debt in our society is among the biggest gambles we have ever taken.
14
@Paul yup, tax cuts on the wealthy essentially let them substitute bond buying @ a +3% return for taxpaying at a -100% return.
No way to run a railroad!
1
To your list of possibilities I would add relatively stagnant wages and a shrunken middle class unable to hold their own in yet another downturn.
28
The seeds of the economic sadism for the next recession are being sown in every article about the deficit today...."we won't be able to afford our response"...
Danger ahead.
7
Don't forget pasta and noodles on the Smorgasbord: Italian banks and Chinese Real Estate.
3
Perhaps there is a bubble of complacency about the likelihood of war, pestilence, or major coastal earthquakes?
2
Student. Debt.
22
@Charles
Indeed. I can honestly see millions of students in the very near future marching on Washington and demanding massive and immediate reform, otherwise they are all going to default all at once. (no matter the economic repercussions to them or the economy)
I might even join them.
11
@Charles Becker
Sorry, but student debt is less than a pimple in the US economy.
For example, all the student debt in the entire USA is less then the unfunded pension and health care liability of public employees in California alone.
If all students default, it will hardly be noticeable.
In his column today, Ruchir Sharma points out that markets are now at 360% of world GDP, a record high. If that’s accurate, only one small side dish—rather than a full smorgasbord—will be enough to trip the next recession.
17
(wonkish?)
Unbridled Greed. A focus on short-term profits to the exclusion of all else. Ever-rising inequality. The shoveling of ever-greater piles of the nation’s wealth into the (offshore) bank accounts of the very rich. Crumbling infrastructure. A terrifying lack of any rational public oversight of capital and corporations...
Credit Default Swaps. Derivatives. Shell corporations. Non-Disclosure Agreements. The Swamp. ... can anyone DOUBT that there are armies of self-proclaimed financial ‘wizards’ at this very moment feverishly engineering/inducing/conjuring their next ‘Heads? I Win! Tails? You Lose!’ con? The RICH got RICHER from the Crash of ‘08. They were ‘made whole’. And then some. WE PAID THEM quite handsomely for CREATING it.
The “Conservatives” among us have publicly re-branded Greed... Avarice... (not ‘wanting more’... but NEEDING the other guy to lose... in order for you to ‘win’ – aka “zero-sum” scenarios)... not as a Sin, but as a Virtue. And not only that, but THE HIGHEST virtue... the one which trumps all others and will – simply by declaration – ‘create the greatest good’. It’s insane. And inane.
Where is the next crash coming from? The fact that we have not yet discarded the lie that un-regulated, un-supervised, un-governed Capitalism is all we need in order to achieve a healthy and civil society.
My God. Adults roam the halls of the Washington and the corridors of Wall Street that actually believe Ayn Rand was a serious thinker...
63
Let's factor in block chain investments hovering up capital (and energy) that supplies nothing in return. How many billions will evaporate when that scheme collapses?
3
I'd be curious what would happen if stocks dropped 30% (the initial start of the 2008-2009 recession)? Companies that have been doing buybacks over the past 5+ years would take a significant hit, both in their market valuation and then also in their company stock they have purchased since the stock price has gone up and they've been buying in over this time period. At some point the company has switched a safer asset (cash) to a riskier asset (common stock). Could this "haircut" in stock price trigger the next real long deep U recession since cash was used to buy company stock vs. investing in R&D, equipment modernization to support proper expansion and most importantly keeping some cash on hand for "rainy days". I feel like this could feed on itself and things could get really scary since many companies have utilized this strategy to inflate the stock price.
6
@Ken Totally, that's all it is for, to inflate the stock price. Buy backs should be illegal.
Krugman should have probably included the Japanese stock market crash of 1989 as a factor in the subsequent US recession. The Japan was a major source of foreign investment in the US in the 80's.
Now the Trump administration is talking about limiting foreign investment in the US, primarily from China.
11
I am not an economist but have a pet theory which I would love to have debunked or validated. The pet theory is that the uptrend in inflation, peaking under Carter, was about wealth extracting its pound of flesh after the gold standard was dropped by Nixon in '71.
2
@TRS80 No, it was caused by dropping the "gold standard" of Bretton Woods coupled with deficit spending (Vietnam) and loose monetary policy. Don't forget we shifted to a "floating" dollar in the 1970's. Just too many dollars chasing too few goods.
7
@TRS80 A major factor was the cost of the war in Vietnam.
@TRS80 certainly I would surmise the high headline inflation of the 70s caused the bond buyers to go on strike for higher yields.
Actually the main problem leading up to the recession of 1990 was probably the banking and S&L crisis. Hundreds of both failed, because of the crash in oil price which affected oil-dependent areas, and deregulation. But this built up through the 80's and was not hidden. Nothing like that is visible currently - yet.
3
I thought Krugman just published and essay about how the IS-LM model showed that monetary expansion at the "zero lower bound" was still effective. I was hoping he would expound on how the IS curve demonstrates this. I guess he's just ADHD like most economists.
I think huge deficits with full employment will lead to a conventional tightening recession.
3
One major triggering factor in the early 90's slump was the fall of the Soviet Union. Maybe it is more obvious from a European perspective, but it did most probably cause a second offer effect in European consumer demand of goods and services from the US, despite very limited direct trade between the two superpowers.
2
I don't know what caused the 1990-91 decline but I can tell you that the previous owners of my furniture store used it as a lesson for me to understand what I was getting into. Basically, they didn't sell a single sofa for 11 months.(At the time, they had around 2 million in revenue per year with sofa's being a leading category). It was a consumer bloodbath.
12
Seem to ignore debt, especially student debt which I postulate will have as large an effect as any other category.
8
Thank You Dr Krugman.
I would like it if you could translate this into a recommendation for personal finance. Is it time to moderate risk in investments (isn't it always?)? I mean some mutual funds average 20% returns for a year. Boy that's tempting.
Does one prep for disaster or ride the wave of common belief?
@larkspur- Buy dividend producers, essentials like utilities and communications- avoid cyclicals (autos, consumer and retail)
You can be sure of military spending, those companies will make money- make sure you get a company loyal to their dividend.
5
No mention of Brexit or tariffs! I'm surprised.
1
I remember the jobless recovery of the early 1990s very well, since that's exactly when I graduated college (with a B.A. in Econ. btw) and found the employment pickings to be very slim.
8
@Mikeweb - Ditto here. It took me a long time to find something. And I had to settle for $17K/year in 1988 with a Bachelor's Degree. I also went to MBA school at night. It took me nearly 5 more years to get to a real salary ($32K). It was a tough market and no one was hiring. I hope I never go through that again.
7
Surely the phrase, 'The smorgasbord attacks' is going to go down in economic history.
Dr. K, I did *not* need that visual image.
We have an economy that is badly stressed today. It is hollowing out. Lots of key industries are no longer sustainable in the US, including tech. (Apple, Intel and Nvidia can't build their products in the US today,) Our infrastructure is not being maintained. The "rule of law" that can offer fairness is rapidly becoming a club used by the wealthy lawless. Climate change will degrade our infrastructure at an increasing rate.
Our worst immediate threat is an incompetent administration staffed by people who have promised to accelerate any downturn with austerity policies to combat recession.
Our country has far less resilience than before, and utterly wrong-headed leadership.
A downturn can "start" from many sources. Unfortunately, we have positioned ourselves to accelerate any downturn into a long, deep, nation-altering depression. Like the millions of dead trees pre-positioned in our forests, dried out by climate change, our country's economy can burn down quickly--no matter what the source of the spark might be.
This is the real risk.
57
@Mark
Excellent comment - especially with the environmental metaphor that is all too real. Well done.
8
I suspect 3 years away is just about right.
We are likely to see Trump shift from Arsonist to Firefighter on trade in early to mid 2020 to affect the election cycle.
Of course there will be a declaration of victory no matter what the actual positive outcomes have been - and there may well be none.
But the pain and threat will go away and that will certainly help the economy. I guess it's good, strategically, to have that card to play, even if you did steal it from the deck to begin with...
2
I agree that the next downturn will involve many things. I do think student loan debt, healthcare costs, and natural disasters will also play a part. Greed, greed, and global warming (more greed).
Oh, and all of these items and our antiquated infrastructure will stall recovery.
35
@UpState John
People want infrastructure investment and have wanted it for a long time. They want the jobs that come with it. Why government cannot see that beats me!
15
There was a good article today talking about how too many companies are financed with junk bond debt or other non-bank sources of finance. When there is a confidence crisis, a lot of companies could find themselves unable to roll over their bonds. It could start in China, which at this stage of development is due for a financial crisis or two.
4
The view of the chairman of the economic and development review committee at the OECD, William White
"Global monetary policy has been “ultra-easy” for many years. Yet it is becoming clear it is now caught in a debt trap of its own making.
Continuing on the current monetary path is ineffective and increasingly dangerous. But any reversal also involves great risks. It follows that the odds of another crisis blowing up continue to rise. "
https://www.ft.com/content/e1dc1286-0ccb-11e8-bacb-2958fde95e5e
I.e. just as Woof observed, the great risk is how to unwind the monetary policies of the Central Banks.
5
And the unstated punch line is "And fiscal policy, if the recent past is any indication, will be exactly wrong headed."
7
I would look at commercial real estate. Shopping malls continue to collapse. Those who hold large portfolios of real estate might reach a point where the can't even sell assets at fire sale prices.
We also continue to down load employees as call centers and even knowledge work passes to automation. Surely this will at to the problems as a series of tiny bubble go flat.
In the meantime, governments have played games trying to avoid taxes for everything from pensions to infrastructure.
Any other suggestions out there?
16
@Terry McKenna
Baby boomers are reaching the end of their working lives, though many intend and need to keep working until they drop.
Businesses run out of gas and close shop as owners retire. Old properties may not be able to be updated. No one is interested in rejuvenating them.
Ever sat in a dentist office and play the parlor game of guessing when the practice opened by looking at the décor? Business owners only invest in decorating once.
2
Of course, the economy will stall and stock prices drop at some point. The cause is typically excessive optimism -- like lenders assuming (hoping) borrowers will repay while both aggressively (recklessly) leverage their bets. Or America First strategies isolating our country, depriving us of immigrants and trade partners we need for growth. We're learning the hard truth that our Constitution doesn't protect us from tyrannical government or economic disaster.
9
The tax cuts to the rich and to corporations will contribute to the next recession just as the similar cuts precipitated the 90-91 after the Reagan cuts and 2001 after the Bush cuts. This is due to the money produced by all the working classes being funneled upward in a more accelerated fashion (stemming from the cuts).
Secondly, this spring when everyone begins preparing and filing their tax forms, many will be hit with a sizable tax bill they were not expecting. This will come from the fact that while rates may have been lowered, these workers in the higher-taxed states will have failed to lower their allowances on their income with their employers. The allowances should be lowered due to the SALT deductibility being removed. As such, most workers from these states are presently having too little tax collected. That will impact spending come spring.
20
If any economist was able to predict a bear market reliably he'd be too wealthy to even bother writing NYT op-eds.
So Krugman is correct about the amorphism in such predictions. It's only after the fact that one can assign a possible cause; and in most cases there are several plausible cause that work together to bring things to a head.
2
Is "Wonkish" in () some sort of trigger warning?
18
I always take that admonishment as a form of chest thumping, a polite version of “follow me, if you can.”
It simply means the column today is a little more technical than usual. So what's your problem?
1
@Southern Boy, I do believe it is. It triggers me to click and read.
4
A list of known unknowns
Unknown unknowns
How to safely unwind the monetary policy of the Central Banks that printed unprecedented amounts of money.
No historical guides available.
6
Re: " it’s a reason to not raise rates until inflation is significantly higher,"
Significantly , for financial experts is an increase above the 2% target of the Central Bank
And it is , already
2018-08-10 Inflation Rate YoY 2.9%
=======
https://tradingeconomics.com/united-states/inflation-cpi
5
Knowing nothing, I am free to speculate.
If "The Big Short" was accurate, the last disaster came from a direction nobody could see; it welled up from a lot of people simply not doing their jobs, unsupervised, at ratings agencies, stockbrokers' offices, government agencies. Because the entire system was constructed around the central concept of whatever makes money is good, the rotten to the core mortgage backed securities went undetected, like feeding the diabetic the sweet sugary things, which pleases everyone until he finally collapses.
Question is, is there something unmonitored out there which your graphs are missing?
39
@Claudia
Actually, quite a few people did see it and with sufficient lead time to have reinforced many financial sector balance sheets. Part of the problem, one that remains unresolved, is that the risk models commonly used in the corporate sector were based on false premises. These premises are derived from orthodox but obsolete economic/financial doctrine. So the enduring question is, why do senior executives almost never accept strong evidence that their consensus complacency is a threat to their firms and their own bonuses (some, anyway)? Many of the poster-children for the crisis had been told what was coming and chose to ignore the evidence. I know, I was there and a party to the debates. Very little has changed in the interim.
If at this late date senior executives in finance cannot figure out how to encourage analytical innovation, then we need either an enormous change in incentives (comp structures, hello boards of directors) or more oversight of their decision-making.
11
Question is, if there's something unmonitored, how would we know?
The next recession will be a depression and, I agree, it will have more than one cause.
- Housing will be a huge factor.
- If Trump is allowed to continue engaging in trade wars and consumer prices rise significantly, demand will suffer. Food prices are expected to rise in January, if the trade war with China isn't resolved by then.
Companies are starting to close lines of production because of the trade wars.
- We are most likely not at full employment because more people need jobs, well past retirement. Wages haven't kept up.
- People working multiple jobs is becoming the norm. Blame high housing, food and utility costs, as well as student debt.
- Centrist Democrats writing the legislation that rolled back parts of Dodd-Frank was a huge unforced error that will be costly.
- The much reduced tax revenue, thanks to the Tax Scam Bill will be a huge factor
- We need better accounting of funds held by the different government agencies. There has been news of the Trump administration shuffling funding around to pay for their immigration policy. With no congressional oversight, we have no idea the extent of that kind of behavior and how widespread it might be.
- The cost of global warming and the disasters we are experiencing multiple times a year now. Drastically declining tax receipts are going to hurt.
- The health and financial cost of rolling back environmental regulations.
The list goes on...
---
The Things Trump Did While You Weren't Looking
https://wp.me/p2KJ3H-2ZW
63
@Rima
You are so good and so on point every single day, that you really need your own blog. Oh wait ! (I kid)
Every time Democrats get back into the office after a republican regime, and look in the cupboard to see what is left, they are shocked to see that there might be a little piece of cheese and a few crumbs. I think this time there will only be a note saying that we owe X amount of trillions.
Sigh...
44
@FunkyIrishman
I think we'll be lucky if all that's missing are a few trillion. The plecostomi are cleaning us completely out.
@Rima Regas Your comment is full of conjecture that leads you to believe that a depression and not a recession is on the way? Can you explain why you think a depression is more likely than a cyclical recession that the economy can and always experience? There aren't any elements that you listed that point us to the direction of a catastrophic depression. And, no, I'm not a Trump supporter just trying to argue the inevitable -- I simply don't understand your theory.
3
Correct me if I am wrong, but any recession is brought on by a critical mass of people running out of money (their buying and burrowing power), correct ?
''lots of people are looking for the sources of the next recession.'' - So, on the premise of above, isn't a recession going to come when all of the money (burrowing power/debt/spending) is funneled up to the top 1%, that there is nothing left for anyone else ?
It would also seem to me that when you give trillions of tax payer dollars free to the top 1%, and continue to have the loopholes to invert/hide even more trillions, that the push is on for a recession.
Furthermore a few key leaders in the world are shorting the economy (via said tax measures and new crushing taxes/tariffs) where people are working more,longer for less. Eventually the workers will not be able to keep up.
Seems crystal clear to me what path we are on.
72
@FunkyIrishman
Under these circumstances, Marx might say we get a revolution before a recession. Let's start one by voting.
Everybody vote.
2
@FunkyIrishman
I agree with your hypothesis "recession is brought on by a critical mass of people running out of money". I just drove from Florida to Oregon and one of the images that remains in my mind are the number of vacant spaces in the malls. Some of this might be attributed to changing shopping patterns (Amazon, Walmart, etc.), but the fact that there is less and less income for this critical mass of people has to be a major contributor.
1
@FunkyIrishman
In other words, the fools voting among us, this time the combination of deplorables and Stein voters, once again put the Republicans in charge, so of course the result will be a recession or depression. DUH!
http://cepr.net/images/stories/reports/housing-bubble-2018-09.pdf
September, 2018
The Housing Bubble and the Great Recession: Ten Years Later
By Dean Baker
Executive Summary ...
g) There are no economy-threatening bubbles on the horizon. The conditions that allowed for the 2008–09 recession and financial crisis to be so severe were easy to recognize prior to the collapse of the bubble. For a bubble to be large enough for its collapse to threaten the economy, it has to be large enough to have a major impact before its collapse. No such bubble exists today or is on the horizon.
1
@Nancy Exactly why he says in the 2nd paragraph that "The thing is, there’s nothing out there as obvious as the housing bubble of the mid-2000s, or even the tech bubble of the late 1990s." As a longtime reader of both, I know Baker and Krugman are very close philosophically in their views and often reference each other in their works.
1
@Nancy If the bubble in 2008 was so large, how come no one noticed it?
@John Harper
https://fred.stlouisfed.org/graph/?g=lhY2
shows annual real (2017 dollars) per-capita (age 25-54) mortgage debt take-on was $2,000 - $4,000/yr until 2000, then spiked to $12,000/yr in 2006.
There was your bubble
Was Wondering Dr. Krugman if you could address the What if scenario of the affect the Trump tariffs will have on China? They're extreme production over-capacity, they're dependence on exports overseas to alleviate that over-capacity. China's lack of a domestic consumer outside of Shanghai and a few coastal enclaves? Will US tariffs put China's economy (long predicted) in a nosedive and if so what that would do to the US and Global economy? I got a feeling Peter Navarro, Wilbur Ross and Donald Trump could care less what happens.
24
@Robert Pohlman
I had the same question.
So when 45's tariffs crash China's economy and they come calling for their $1T (amount of US debt held by China), and we can't pay, what happens then?