When President Trump nominated Congressman Tom Price for Secretary of Health and Human Services he created a vacancy in Georgia’s 6th Congressional District. After no candidate secured a majority in the first round of voting, a runoff was to take place yesterday among the top two contenders. Republican Karen Handel squared off against Democrat Jon Ossoff in a race both parties suggested was an important indicator of where things stand eight months after the presidential election.

The New York Times labeled it as the most expensive congressional race in history. In the end, despite a massive flood of money to Ossoff’s campaign, Handel won with approximately 52% of the vote. The district has leaned heavily R in the past, with Price winning by 20 in his last election, so both sides are declaring victory on political grounds.

Only one politician so far, however, seems to have grasped the dynamics of the 2017 American electorate. Speaking yesterday on CNN Tonight, Illinois Rep Cheri Bustos (D) made the most sense:

Donald Trump frankly, had a message that resonated with people who haven’t got a raise in the last five years, who saw their jobs, like a plant in my district, Maytag, ship every last one of the jobs over to Mexico. We’ve seen so many of those stories, and when he talked about making America great again in very simple terms, that resonated with people who wanted hope. What we didn’t talk about enough, consistently, was about jobs, the economy, and fighting for people who want better times ahead.

There is very little sense of urgency about the economy. To some degree that is understandable. When speaking or writing about the current state, the media and most economists do so in terms of what is now a very long expansion. The last declared recession was eight years ago, meaning that for nearly a decade the US has avoided another one. That sounds, on the surface, like some measure of real achievement.

It is extremely difficult in traditional terms to describe the current state of economic affairs. It is a failing that inhabits both political parties. For all the talk last year about doing things different, the Trump administration and Republican majorities in Congress haven’t done anything. In the one area that really matters, the latest noises out of the White House were actually favorable to Janet Yellen, rumors that, somehow, she might even be considered for a second term. It’s a very different picture than the one last year when it seemed (made to seem?) as if an elected Donald Trump might just fire her on the spot.

Politics is paralyzed because politicians don’t really have any idea what is going on. To that end, Janet Yellen and the rest like her have offered no assistance. Everyone knows there is “something” wrong, but because GDP is mostly positive it might not at times seem like a monumental issue. This is why characterizing the contraction in 2008-09 as a recession is a problem. Calling it that, officially or just colloquially, places it in the past with no lingering bearing on the current world.

It is, as I try to describe, a failure of linear thinking in a decidedly non-linear world. Yes, GDP has been, for the most part, positive, but it hasn’t been nearly enough positive to erase that last recession (which therefore can’t have been a recession) let alone plot a productive future course. We aren’t yet done with the Great “Recession”, with many people still waiting for a recovery.

The mere fact of the Fed’s now four “rate hikes” has amplified the expectation that there will be one. After all, what point is there to do this if the economy isn’t going to actually improve? As late as 2014, that is what policymakers were claiming as the process and rationale.

They have not in 2017 clarified or updated their stance publicly, but the “rising dollar” killed all expectations for any meaningful acceleration. To be clear, there was never really going to be an upturn, as what changed was instead mainstream expectations and predictions. The Fed no longer sees any improvement at all, just an economy stuck around 2%; which really means uneven growth of an occasional good quarter surrounded by mainly bad ones. It qualifies as technical expansion, but it truly isn’t.

What’s notable about policymakers’ latest projected central tendencies for this year and next is what is missing. There isn’t any forecast acceleration at all, leaving the economy still to deal with the contraction eight years ago as well as an “expansion” that is by every historical standard already the worst. It is a double hit to the economy, where it shrank in absolute terms and then again after that in non-linear fashion.

Because of this condition, the Federal Reserve can’t get or do anything right. The recent oil price weakness has already shown up in modeled projections for PCE Deflator measured inflation (2017). That throws off all considerations for what they assume as equilibriums (mostly surrounding the unemployment rate).

That means monetary policy itself has no true guide for where it intends to go. In June 2015, just before all the “rising dollar” fireworks, the Fed’s statistical models thought it as likely the federal funds rate this year could rise as far as 3.75%. Needless to say, they don’t calculate that way any longer.

It is now predicted that the main policy rate by next year is not likely to get much above 2%. For most politicians that distraught Americans turn to for answers, there appears to be little or no appreciation for what this means. It is a very bleak description of what is to come, one so devoid of opportunity that financial and more so money markets prioritize greatly liquidity over any other factor. It is a projection that the current economic misery will, in fact, continue on for the foreseeable future.

In this context, “reflation” is nothing but a fad – just as the last two were. It is, as noted yesterday, a mischaracterization of the circumstances we find ourselves trapped within. The people are looking at least for answers, that is why Donald Trump was elected and Bernie Sanders, an avowed socialist, nearly made it to the nomination against him. The rest of the so-called establishment has already given up.

Remarking to CNBC on the budget proposal, former Federal Reserve Vice Chairman Alice Rivlin stated the issue perhaps as well as might be expected. With respect to these expectations for economic vitality, she said very simply, “We haven’t seen 3 percent growth for a long time.”

 

Now that economists have finally come to expect it, they now expect only it; they have committed to that next logical fallacy. From their point of view, policymakers did everything right and it came out only wrong, therefore they now believe there are no answers at all. Who even thinks like that?

There is no recovery coming, and if there isn’t a recovery then it wasn’t a recession. Time doesn’t factor in that analysis. But if it wasn’t a recession, then what was it? Answer that question and 3% growth becomes no longer a dream but a distant floor. That’s the only political equation that really matters.