Warren Buffett, Charlie Munger and Bill Gates sit down with CNBC’s Becky Quick to discuss the state of the markets as well as the overall economy and the Fed.
Infrastructure won’t happen until the Democrats regain control.
Donald Trump isn’t the first president, or even the first Republican president, who has sought to define his legacy in part with a big construction project. Abraham Lincoln signed legislation providing the land grants and financing that created the transcontinental railroad. Theodore Roosevelt built the Panama Canal. Dwight Eisenhower built the interstate highway system.
But Trump’s wall is different, and not just because it probably won’t actually get built. Previous big construction projects were about bringing people together and making them more productive. The wall is about division — not just a barrier against outsiders, but an attempt to drive a wedge between Americans, too. It’s about fear, not the future.
Why isn’t Trump building anything? Surely he’s exactly the kind of politician likely to suffer from an edifice complex, a desire to see his name on big projects. Furthermore, during the 2016 campaign he didn’t just promise a wall, he also promised a major rebuilding of America’s infrastructure.
But month after month of inaction followed his inauguration. A year ago he again promised “the biggest and boldest infrastructure investment in American history.” Again, nothing happened.
Last month there was reportedly a White House meeting to game outa new infrastructure plan. This time they mean it. Really. Would this administration ever lie to you?
The interesting question is why Trump seems unwilling or unable to do anything about America’s crumbling roads, bridges, water supplies and so on. After all, polls show that a large majority of the public wants to see more infrastructure spending. Public investment is an issue on which Trump could get substantial Democratic support; it would lift the economy, and also help repair the public’s perception that the administration is chaotic and incompetent.
Yet everything points to two more years of occasional bombast about infrastructure, with no follow-up. Why the paralysis?
Some news analyses suggest that it’s about money, that big infrastructure spending would happen if only Republicans and Democrats could agree on how to pay for it. But this is being credulous. Remember, in 2017 the G.O.P. enacted a $2 trillion tax cutwith absolutely no pay-fors; the tax cut is completely failing to deliver the promised boost to private investment, but there is no sign of buyer’s remorse.
So Republicans don’t really care about using debt to pay for things they want. And Democrats, whose top policy wonks have been telling them that deficit fears are excessive, would surely support a program of debt-financed infrastructure spending.
The response to the 2008 economic crisis has relied far too much on monetary stimulus, in the form of quantitative easing and near-zero (or even negative) interest rates, and included far too little structural reform. This means that the next crisis could come soon – and pave the way for a large-scale military conflict.
BEIJING – The next economic crisis is closer than you think. But what you should really worry about is what comes after: in the current social, political, and technological landscape, a prolonged economic crisis, combined with rising income inequality, could well escalate into a major global military conflict.
The 2008-09 global financial crisis almost bankrupted governments and caused systemic collapse. Policymakers managed to pull the global economy back from the brink, using massive monetary stimulus, including quantitative easing and near-zero (or even negative) interest rates.
But monetary stimulus is like an adrenaline shot to jump-start an arrested heart; it can revive the patient, but it does nothing to cure the disease. Treating a sick economy requires structural reforms, which can cover everything from financial and labor markets to tax systems, fertility patterns, and education policies.1
Policymakers have utterly failed to pursue such reforms, despite promising to do so. Instead, they have remained preoccupied with politics. From Italy to Germany, forming and sustaining governments now seems to take more time than actual governing. And Greece, for example, has relied on money from international creditors to keep its head (barely) above water, rather than genuinely reforming its pension system or improving its business environment.
The lack of structural reform has meant that the unprecedented excess liquidity that central banks injected into their economies was not allocated to its most efficient uses. Instead, it raised global asset prices to levels even higher than those prevailing before 2008.
In the United States, housing prices are now 8% higher than they were at the peak of the property bubble in 2006, according to the property website Zillow. The price-to-earnings (CAPE) ratio, which measures whether stock-market prices are within a reasonable range, is now higher than it was both in 2008 and at the start of the Great Depression in 1929.
As monetary tightening reveals the vulnerabilities in the real economy, the collapse of asset-price bubbles will trigger another economic crisis – one that could be even more severe than the last, because we have built up a tolerance to our strongest macroeconomic medications. A decade of regular adrenaline shots, in the form of ultra-low interest rates and unconventional monetary policies, has severely depleted their power to stabilize and stimulate the economy.
If history is any guide, the consequences of this mistake could extend far beyond the economy. According to Harvard’s Benjamin Friedman, prolonged periods of economic distress have been characterized also by public antipathy toward minority groups or foreign countries – attitudes that can help to fuel unrest, terrorism, or even war.
For example, during the Great Depression, US President Herbert Hoover signed the 1930 Smoot-Hawley Tariff Act, intended to protect American workers and farmers from foreign competition. In the subsequent five years, global trade shrank by two-thirds. Within a decade, World War II had begun.
To be sure, WWII, like World War I, was caused by a multitude of factors; there is no standard path to war. But there is reason to believe that high levels of inequality can play a significant role in stoking conflict.
According to research by the economist Thomas Piketty, a spike in income inequality is often followed by a great crisis. Income inequality then declines for a while, before rising again, until a new peak – and a new disaster.
This is all the more worrying in view of the numerous other factors stoking social unrest and diplomatic tension, including
- technological disruption, a
- record-breaking migration crisis,
- anxiety over globalization,
- political polarization, and
- rising nationalism.
All are symptoms of failed policies that could turn out to be trigger points for a future crisis.
.. Voters have good reason to be frustrated, but the emotionally appealing populists to whom they are increasingly giving their support are offering ill-advised solutions that will only make matters worse. For example, despite the world’s unprecedented interconnectedness, multilateralism is increasingly being eschewed, as countries – most notably, Donald Trump’s US – pursue unilateral, isolationist policies. Meanwhile, proxy wars are raging in Syria and Yemen.
Against this background, we must take seriously the possibility that the next economic crisis could lead to a large-scale military confrontation. By the logicof the political scientist Samuel Huntington , considering such a scenario could help us avoid it, because it would force us to take action. In this case, the key will be for policymakers to pursue the structural reforms that they have long promised, while replacing finger-pointing and antagonism with a sensible and respectful global dialogue. The alternative may well be global conflagration.