Third, if growth accelerates, workers might be able to demand and get bigger wage increases, potentially affecting profits, and we could see inflation rear its head, spurring central banks around the world to increase interest rates faster.
Last, during the past decade of slow GDP growth, markets have gained more than 300 percent. This suggest that investors have been quite content with growth of a little more than 2 percent, provided corporate profit growth powered ahead.
No. 3. The impact of tax cuts and tariffs is temporary: All of the incremental political fixes, short-term solutions and one-off legislative proposals are transitory in nature. These developments don’t move the needle beyond a few quarters.
Worse, they are sold to the public under false pretenses by politicians of all stripes. Their grand explanations and hopeful promises are bought by nervous economic actors, but the smarter players know better. Unless and until they are made permanent, they won’t result in the changed behavior that is needed for long-term, sustainable growth.
It takes much larger efforts to alter the behavior of participants in the broader economy or the markets. Whether it is the creation of the Federal Deposit Insurance Co. or the Interstate Highway System or the elimination of tax shelters, to really alter the course of the economy requires broad and bold legislation. None of that has come to pass yet.
This column was provided by Bloomberg News.