The February jobs report, citing 273,000 new jobs exceeding the expected 175,000, would normally have everybody cheering. While Trump cheers these numbers, nobody seems to be joining him. Why not?

That’s easy — a major health scare, tanking financial markets and fear of recession. All three factors inter-related, dominate.

For some time, macroeconomic numbers including low unemployment, steady job growth and low inflation rates, have masked an economy with multiple weaknesses. 

Financial markets had reached levels that were unsustainable — high price-earnings (P/E) ratios, with buyers conditioned by the long bull market to buy on every dip. Any sign of bad news was disregarded as markets continued rising to ever-higher levels.

Barons of Wall Street are roughly divided into two groups. One group sees Trump as the greatest thing since sliced bread — he can do no wrong. Why wouldn’t this business tycoon who defines the economy by the stock market be great?

Another group, slightly more observant, recognizes Trump’s economic ignorance, incompetence and corruption of his administration, but has engaged in a “Faustian Bargain,” putting up with incompetence and corruption in return for the goodies bestowed upon them. These include the gifts from the Trump/Republican 2017 tax bill and its sugar high that continued to goose financial markets — this assisted by the Trump-appointed Fed Chair that appears to see his role as nursing financial markets instead of attending to the real Fed mission of dealing with employment and inflation.

When over-priced financial markets are ready to fall, anything can trigger it — this time, the virus.

While over-priced financial markets were ripe for a fall, the economy was weaker than Trump apologists claimed it to be. Its chief weakness was, and continues to be, income inequality rising to dangerous levels. 

Significant job growth is of no comfort to those who must hold down two or three jobs to put food on the table and pay their bills. Seventy percent of Americans have less than $1,000 in savings, and 28% have zero savings. The average American family carries high interest credit card debt of $8,400. 

Private business investment has been soft. Consumer spending has been the chief driver of the economy. Threatened by measures to contain the coronavirus, significant decline of consumer spending will promote a downward spiral to this economy characterized by debt-ridden consumers. This already has panicked financial markets and could result in recession.

Here’s why. Love is said to make the world go around. But it’s spending that makes the economy go around. That may sound blasphemous coming from a penurious Swiss boy and economist who counsels conservative personal financial management. But here’s the deal.

At the macroeconomic level, without spending, there is no income. Reduced spending means reduced income. Reduced income, leads to further reduced spending leading to reduced production and reduced employment leading to further reduced income — a downward spiral leading to recession.

The usual way out of recession recommended by economists — even by conservative businessmen, whether they like to admit it or not — is expansionary monetary and fiscal measures to prime the pump. Expansionary monetary policy reduces interest rates and expands the money supply, thereby encouraging spending. Expansionary fiscal policy is more direct, consisting of increasing government expenditures to compensate for reduced private spending.

A combination of necessary measures to contain the virus scare, and blunders of the Trump Administration, have not only put us in danger of recession, but at the same time, have made the usual measures to get us out recession less effective, and more difficult to implement.

Recalling that spending makes the economy go around, let’s look at some essential measures to attempt to contain spread of the virus. Reduced travel, reduced attendance at conventions and trade shows, avoidance of crowds, less eating out, more working at home — are all reasonable recommendations to contain spread of the virus, but result in reduced spending, hence reduced income for many people. 

Another result of the virus and measures to limit its spread is interruption of international supply chains. American manufacturing, including some pharmaceuticals, depends on components from other countries. 

The problem is that reduced interest rates will do little or nothing to encourage spending by those confined to quarters. It will do nothing to loosen international supply chains?

There is current talk of fiscal stimulus, additional government spending as during a conventional recession. While this will doubtlessly be necessary, it will do nothing to loosen interrupted supply chains, and little, if anything, to compensate for reduced incomes of unemployed workers, especially in travel and service industries.

These problems would be intractable enough, but have been made more so by the Trump administration’s policy blunders. Trump-appointed Fed Chief, Jerome Powell, led the Fed in three previous interest rate cuts when they were not needed. Wall Street welcomed these cuts as enhancing the financial bull market. But as macro numbers were strong and markets already high, those cuts were unnecessary. And just last week, the Fed surprised with another half percent interest rate cut that will solve nothing at this time. Financial markets continued to tank.

Trump’s greatest blunder was the Republican 2017 tax bill that increased after-tax income inequality, and increased federal deficits during prosperity. Record public debt makes it more difficult to expand federal spending, however necessary.

Economic effects of the virus situation will fall hardest on low income service workers who have neither paid leave nor savings to fall back on.

All necessary measures must be taken at local, state and federal levels to contain spread of the virus. Only then can monetary and fiscal policy measures to address the economy be fully effective. Thus far, the Trump administration has met the problem with denial — “it’s a hoax” — followed by a sorry exhibition of malfeasance and incompetence.

Financial markets are not the economy. When — and if — the public gains confidence in government to competently address issues of public health and the economy, financial markets will take care of themselves.

— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.