Remember when the phrase “It’s the economy, stupid” entered the popular parlance? Coined by the Bill Clinton campaign in 1992 during a recession, it was credited with buoying him to victory over the incumbent George Bush. Since that time, variations on this theme pop up during every campaign cycle, including the recently completed one (all those political ads are gone now at least for a while, woohoo!). This year, voters weighed the challenges of high inflation along with many other factors when casting their votes.
Broadly speaking, the economy is part of the fabric of our everyday lives, not just at election time. The weekly news cycle doesn’t go by without some dramatic headline about the economy. To paraphrase Jorge Luis Borges, the economy is a river that sweeps us along and yet we are the river too. Economics is an interesting-enough aspect of our modern human culture that many of us major in the subject in college, including me. In hindsight, it feels like I learned a little about a lot in that course of study, as opposed to (for example) Chemistry majors, who learn a ton about a very specific topic.
Economics is a great Monday-morning quarterback discipline. It’s amazing how obvious economic trends can be in hindsight. However, predicting future economic results is more challenging. Of course with supply side shocks, the war in Ukraine and massive government spending, we were going to have significant inflation this past year. Of course here in Maine housing prices were going to go up significantly over the last couple of years with low interest rates, virtual working trends, and strong local employment trends. But while these results and explanations are obvious now, if these trends had been so obvious to all of us before they happened many of us would have acted differently.
Due to the inexact nature of their field, economists are frequently the butt of bad jokes based on their inability to accurately predict the future. For example, did you know that economists have predicted five of the last two recessions? It often feels like for every economist there is an equal and opposite one. In spite of that, our overall economic performance is always a focal point for businesses and government officials.
There are numerous economic statistics, indicators and indices tracked these days. You’ll often hear reports about inflation, GDP, jobs, housing starts, the investment market indices, interest rates, international trade, exchange rates, and more. From my perspectiv,e the most important bellwether in our economy is the unemployment rate. While today’s historically high inflation rate hurts us all, there is nothing as painful as high unemployment. Everything costing more is tough but having no income at all is a much bigger problem for individuals and collectively for society.
We’ve been fortunate in Southern Maine to have low unemployment rates and plentiful job opportunities. Many companies continue to struggle to fill open positions. For anyone looking for a job, there are multiple openings, some better than others, but employment right now is accessible to most people looking for work. There is a lot of fear currently that we could be heading towards a recession next year. But low unemployment levels make that less likely if current job market strength continues.
There is no guarantee that there will always be enough jobs for everyone. For many years futurists have worried that automation and advances in artificial intelligence will result in too few jobs for everyone. It’s a fear that has not yet come to fruition thankfully. The more likely near-term problem is that the Fed raises interest rates so aggressively to tamp down inflation that they take the wind out of our economic growth while they are at it, causing the job market to suffer.
What is needed to ensure that there are good jobs for everyone going forward? We need entrepreneurs to keep feeling confident about investing in and opening new businesses. In Southern Maine we’ve had a lot of new businesses open in the past few years which is great, it results in more and different kinds of job opportunities. We need the current public investments in people and occupational education to continue to be prioritized, so job seekers and entrepreneurs have the necessary skills to succeed.
Retaining federal spending flexibility to help stimulate the economy when required and soften the pain of unemployment during difficult times is also important. We recently went through a pandemic crisis where the federal government needed to spend huge amounts of money to keep the economy afloat as public health measures were enacted. If we ever lose that federal deficit spending flexibility, it will be much harder to deal with any economic downtowns and depressions in the future.
The annual government deficit is the other economic metric I tend to keep an eye on. There is always alarm each year when they announce the latest federal budget deficit and the ballooning national debt, but nothing is ever done about it. I don’t believe there is a person, business or country in our civilization’s history that has ever been able to increasingly spend more than they bring in, year after year, so I fear that one day this long-term problem of servicing the national debt will present short-term problems for us all. But like climate change, we’re not structurally well-equipped to deal with slow-burning long-term problems as much as we are good at focusing on near-term challenges right in front of us.
While economic challenges are ever-present, our current job market and the ongoing robust job-creating private sector activity around here lately has been great to see. Making a good living is never easy but it’s made easier when jobs are plentiful and wages are increasing. Continued job market strength is definitely on the Chamber wish list for 2023 and beyond!
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