The US’s predicted collapse once again fails to eventuate
The US has offered some stark lessons in 2022 on the folly of putting too much store in the conventional wisdom, across politics and economics.
The US has offered some stark lessons in 2022 on the folly of putting too much store in the conventional wisdom, across politics and economics. The “experts” have been wrong again.
With each monthly employment report, each consumer spending release, it has become clearer that the repeatedly forecast recession in the world’s biggest economy isn’t eventuating any time soon.
Similarly, Republicans did far worse than expected in midterm elections, even going backwards in the Senate after this week’s run-off election in Georgia.
Democrat senator Raphael Warnock’s victory over former college football star Hershel Walker gave Joe Biden’s Democrats a win for the history books.
It was the first time not a single incumbent senator lost his or her seat since direct election of senators began in 1914 (the states used to appoint them), as election analyst Jacob Rubashkin pointed out this week.
That was handy for Democrats given they already held 50 seats in the chamber. And they picked up an extra one in Pennsylvania after Dr Mehmet Oz, another Donald Trump celebrity pick, lost to John Fetterman.
With an outright majority in the critical upper chamber, which approves judicial appointments, Democrats no longer need Vice President Kamala Harris’s casting vote. While well short of the 60 to pass legislation without Republican support, the Democrat leader Chuck Schumer will have far more power to shape the chamber’s powerful committees.
To be sure, Republicans won a few million more votes nationally in the midterm elections, as did Hillary Clinton in the presidential contest in 2016, but that’s not the US system. “It’s a republic, not a direct democracy,” as some like to say.
Republicans had almost the best external circumstances they could have hoped for; record inflation, an obvious immigration crisis on the southern border, a noticeable rise in violent crime, and a population weary of two years of pandemic restrictions cheered on by Democrats.
But pundits failed to appreciate how tired a large segment of the population were with relentless re-litigation, even if any of it had merit, of the 2020 election.
Trump’s political power appears to be fading, at the very time he’s declared his intention to run for president for a third time in 2024. He didn’t even campaign for Walker in the run-off.
“There is no equivocating – this was a completely and totally disappointing midterm for Senate Republicans and a huge indictment on Trump, Trumpism and the mutually assured destruction the former president insists on taking the party even as he’s still myopically focused on the 2020 election and his bogus claims of fraud,” noted the nonpartisan Cook Political Report in the wake of the result.
The conventional wisdom remains Republicans will win the presidency in 2024. Joe Biden has said he’ll decide whether he intends to run early next year. Either way, though, the conventional wisdom may yet prove wrong again.
Trump’s hold in the Republican party base remains formidable, so there’s every chance he will successfully win the GOP’s nomination in 2024. A recent Economist poll put him first on 36 per cent among Republican voters, compared to Florida governor Ron DeSantis’s 30 per cent, on the question of who would be their preferred nominee.
The most famous man in America has well over $US100m to spend already before he has even started campaigning.
But Trump could easily decide to run as an independent, if the party ultimately spurns him.
He wouldn’t even have to leave Mar-a-Lago and could probably still best Ross Perot, who vaporised George Bush’s chance of a second term in 1992, winning almost 19 per cent of the vote and handing the presidency to Bill Clinton.
“It’s me, or you lose with certainty” might be his persuasive message to the GOP in early 2024.
Perhaps the economy is an even greater surprise. High inflation and soaring interest rates traditionally spell recession. The Federal Reserve has ratcheted rates up at quicker pace than any time in a generation, from zero to almost 5 per cent. The typical interest rate on a 30-year home loan (the standard in the US) has doubled in a year.
There has never been a greater share of professional economists in the US who expect a recession in the next 12 months than at any time since 1969, a proportion sustained for much of this year.
But the economy generated almost 270,000 jobs in November, beating expectations for the umpteenth month in a row, leaving the unemployment rate at 3.7 per cent – around levels not seen since the 1960s.
In November, consumer spending, which makes up two thirds of the US economy, grew 0.5 per cent even stripping out the effects of the higher prices of goods and services, which is so strong the likelihood of a recession beginning this year is almost zero.
To be sure, households have become poorer as high inflation erodes the value of their wages and savings, and any sense of falling living standards, not to mention the near 20 per cent plunge in blue chip stocks, has not yet affected the real economy.
Even more bizarre is the resilience of the housing and car market, two sectors whose buyers are typically dependent on low interest rates. New family home sales jumped once again unexpectedly in October, up 7.5 per cent to an annualised rate of around 630,000 a year. And annualised sales of new cars are some two million a year higher than they were a year go.
Political scientists and economists once again have mud on their faces as the end of 2022 approaches. For ordinary Americans, though, the experts’ bad forecasts were good news.
Republicans did win control of the House of Representatives – scrounging together a slim five-seat majority – making it harder for the Biden administration to pour any more fuel on the inflationary fire it lit last year, and exposing the US government to congressional scrutiny.
And more Americans have jobs than ever before.
For all the criticism of the US and its undoubted socio-economic problems, Americans still enjoy per capita incomes higher than any other developed nation, about 20 per cent above Australia’s according to the World Bank.
Don’t trust the gloomy forecasts for 2023, and whatever political party you follow, don’t write them off so easily.