It’s no secret that the 1 percent has different lives from the rest of us. We fly economy; they fly first class or on a private jet. We have one house; they have a handful. We might rent a canoe on our holiday; they have a yacht waiting at the marina.
But the idea of an economic slowdown, perhaps even a recession, should serve as the great leveler. Even if the 1 percent isn't going to be much affected by rising unemployment, they will certainly feel the pinch of declining corporate profits and lower dividends. But it seems we’ve reached the point that even in the stark face of economic reality the 1 percent live in a different world than the other 99 percent.
We saw it Tuesday when Wall Street surged higher following remarks by the U.S. Federal Reserve Chairman Jerome Powell that the central bank was prepared to act accordingly if the trade wars declared by his boss, U.S. President Donald Trump, caused the economy to weaken. Powell never said he would actually lower interest rates, but he didn’t need to. Everyone understood and the S&P 500 index rose 2.1 percent in response, its second-biggest daily gain so far this year.
On one level the stock market rally makes perfect sense. The 10-year-old bull market has been driven first and foremost by historically low interest rates. When it hit a big pothole in the final quarter of last year it was because interest rates had been climbing to a point where investors perceived the bull to be jeopardy. The rally resumed in January when the Fed signaled that Wall Street need not worry about any further rate hikes.
But on another level the market’s behavior, certainly on Tuesday, illustrates its total disconnect from economic reality.
The post-Great Recession era after 2008 wasn’t a normal time; indeed, economists and central bankers are still scratching their heads trying to figure out what was going one and how a seemingly contradictory situation of super-low interest rates, good-to-reasonable economic growth and low inflation managed to last so long side by side.
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However, in normal times, central banks like the Fed lower interest rates when they perceive that there is economic trouble ahead. A rate cut from the Fed is welcome medicine, but the real problem is the disease. If you’re suffering a horrible headache, the news that the local pharmacy is having a special on aspirin isn’t cause for unmitigated joy. But it seems the 1 percent on Wall Street are aspirin addicts and they are so excited by news of the sale that they’ve forgotten about their pounding heads.
Interestingly, the same day Wall Street was celebrating Powell’s remarks, the World Bank joined other forecasters in predicting a further slowdown in the global economy. It was the second time the World Bank has revised its outlook lower and expressed considerable pessimism about where things were heading. “There’s been a tumble in business confidence, a deepening slowdown in global trade and sluggish investment in emerging and developing economies,” its president, David Malpass, said in a call with reporters. “Momentum remains fragile.”
I can’t think of any time in history where you can point to one man as the cause of a global economic downturn. The global economy is just too big and too complicated. But Trump is a rule-breaker and this may be one of the rules he’s breaking. His policy of slapping tariffs on any and all countries with which the U.S. has a dispute, including non-economic ones as in the case of Mexico, is gradually taking a toll on the world economy.
It’s not just the number of trade partners he has declared war on, but the cavalier and unpredictable way he does it. Businesses don’t know when and where the next hit to their supply chain will come from and that makes it impossible for them to adjust. On Main Street, there’s a growing understanding of this; Wall Street seems oblivious.
So does Israel. It’s sad to see how popular Trump remains in Israel (although contrary to conventional wisdom, polls show Israelis have less confidence in him than they did in Obama before the Iran nuclear deal). Trump has showered Netanyahu with kind words, relocated the U.S. embassy to Jerusalem and recognized Israeli sovereignty in the Golan Heights. In appreciation for the latter, a settlement in the Golan will be named for him, something no U.S. president has been honored with since Truman.
Alas, an unemployment office in Tel Aviv might be a more appropriate place to carry the Trump name, since joblessness may well the president’s most lasting legacy to Israel. The embassy and Golan sovereignty were symbolic and of little practical use to Israel — they certainly had no effect on how the rest of the world perceives the status of the two places. But a global recession sparked by a trade war for which Trump and only Trump can claim responsibility is something else.
For now, all is looking well for Israel economically, just as it is for America. But we’re a globally oriented economy: More than a third of our gross domestic product comes from exports and the high-tech sector is almost entirely reliant on foreign investments and acquisitions by overseas companies. If world trade and cross-border investment go into decline because of Trump’s policies, Israel’s economy will go down with it.