Is the economy in trouble?

From Robert Reich
Richmond, CA ·

I hate to sound a pessimistic note, but I’m frankly worried about the economy. I fear the U.S. and the rest of the world are on the brink of a recession, or, even worse, deflation -- due to (1) widening inequality that’s putting more and more of America’s (and the world’s) income and wealth into the hands of a relative few, causing the middle class to shrink, and thereby reducing aggregate demand; (2) chronic imbalances in the Chinese economy that are dramatically reducing global demand for commodities; (3) continued austerity economics in Congress, state governments, and Europe (led by Germany), which is reducing public investment precisely at the time when it’s most needed; and (4) baseless fear of inflation by the Fed, which has led the Fed to begin raising interest rates at exactly the wrong time.

Put them all together and they spell inadequate demand for the increasing productive capacity of the globe. This is a recipe for a global recession or deflation. There’s not much we can do about China, but we can (1) seek to reverse widening inequality in the U.S. and grow the middle class (for example, by raising taxes on the rich and cutting them on the middle class and poor, raising the minimum wage, and enlarging the Earned Income Tax Credit); (2) increase public investments in crumbling infrastructure -- roads, bridge, public transportation, water and sewer systems, and schools; and (3) urge the Fed to reverse course and reduce interest rates, even into negative interest-rate territory.

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