Trump’s tantrums and the looming recession: why economists are right to sweat

As I write this, a sigh hangs heavy – despite the president’s belated retreat from threats of war crimes against Iran, the potential for global catastrophe remains stubbornly present, fueled by a concerning dependence on a Diet Coke.

A cerebrum like a rancid mcnugget?

Let’s be brutally clear: predicting economic trends shouldn’t require navigating the erratic whims of a man whose cognitive function appears remarkably similar to a deeply unpleasant Chicken McNugget. Australia’s property market is experiencing an unsustainable surge, leaving young people facing an increasingly impossible prospect of homeownership.

Economists’ warnings: a history of foresight

The past week has been dominated by intensifying recession fears, with media outlets scrambling to gauge the odds. Remarkably, economists consistently fail to predict recessions – a dismal record of 30 out of the last five attempts. But, I possess a certain, shall we say, aptitude for such matters. My February 2020 analysis, “Bushfires and the Coronavirus Will Hit Australia’s Economy – But They Won’t Knock It Out,” proved prescient. So, while I wouldn’t claim absolute certainty, my assessment merits a degree of considered attention.

Stagflation’s shadow

The current anxieties stem largely from a confluence of factors, most notably Trump’s recent ‘Taco manoeuvre’ – a surprisingly effective, albeit fleeting, market reaction to falling oil prices. However, the underlying issue extends far beyond immediate geopolitical tremors. The 1970s, characterized by ‘stagflation’ – a paradoxical combination of rising inflation and stagnant economic growth – offers a chilling precedent. The Opec oil crisis and the Iranianrevolution’s fallout unleashed a chain of events that defied conventional economic models at the time.

The rba’s tightrope walk

The Reserve Bank (RBA) is now navigating a treacherous path. Just three weeks ago, the Governor acknowledged the possibility of triggering a recession to combat inflation, stating they’d “have to deal with that possibly.” That’s hardly reassuring. While unemployment figures remain relatively stable – a more relevant metric than GDP contraction, as highlighted by Claudia Sahm’s research – the RBA’s willingness to prioritize inflation control above all else is a gamble we can ill afford. We are nowhere near a traditional recession, defined by a sustained rise in unemployment.

Beyond gdp: the human cost

The Covid recession was artificially induced; a manufactured downturn that swiftly reversed itself. A genuine recession leaves a lasting scar on the labor market, impacting full-time employment for years. The historical trend of male full-time employment since 1970 paints a stark picture of collapse during periods of economic distress, with recovery proving elusive. The RBA’s current approach – prioritizing inflation even at the expense of broader economic stability – risks perpetuating this pattern. It’s a reckless calculation, ultimately prioritizing theoretical models over the lived realities of ordinary Australians.

A measured response, not a reckless gamble

Let’s be clear: the risk of a recession isn’t about two consecutive quarters of negative GDP growth. It’s about a sustained rise in unemployment – a 0.5 percentage point increase within a year. The RBA’s recent reticence to raise rates, despite persistent inflationary pressures, is a dangerous complacency. Thankfully, Trump’s pullback from his latest belligerence offers a temporary respite, but the RBA’s unwavering commitment to curbing inflation, even if it means sacrificing economic growth, remains a significant concern.