The White House courting a recession is reckless

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It’s pretty shocking that the White House seems to be risking a recession as a pathway to some type of economic “reset.” Anyone with an appreciation of the dislocations and pain that come with recessions would be wary of tempting fate, especially at this moment in time.

President Donald Trump campaigned on the idea that he would use tariffs to negotiate fairer trade agreements, leveling the playing field for American exporters and, ultimately, driving a manufacturing renaissance that would create high-paying jobs. Given how Trump used the economy and financial markets as measuring sticks during his first term, the thinking was that he would know when to cut back on the tough trade talk before the fallout got too damaging.

Alas, that doesn’t seem to be the case. Just eight weeks into his second term, it’s clear that Trump has weaponized tariffs, or at least the threat of tariffs, to achieve non-economy objectives even if it wrecks the well-being of American businesses and households — something he failed to mention on the campaign trail.

“There’ll be a little disturbance, but we’re OK with that,” Trump told Congress. Treasury Secretary Scott Bessent was more pointed, saying “there’s going to be a detox period.” Part of that detox is sweeping federal jobs cuts, which some economists say could spill over into the broader economy and result in the loss of more than half a million jobs by the end of the year.

The response has been severe. Consumer confidence has cratered, a poll of more than 220 chief executive officers found that business confidence is the lowest since November 2012 on policy uncertainty, some $6.8 trillion has been wiped from the value of U.S. stocks, and Wall Street strategists are slashing profit estimates.

Some say that’s all an overreaction. Trump inherited an economy from the Biden administration that was widely acknowledged as the envy of the world. Surely it can withstand, as Trump put it, “a little disturbance.”

Such complacency is naïve. Economic contractions are unpredictable and change behaviors. It can take years for the labor market to heal. It took four years for total nonfarm jobs to recover from the one that followed the bursting of the dot-com bubble at the turn of the century. The big losses in the equities market led many Americans to shun stocks for years in favor of hard assets such as real estate. That led to the housing market bubble, which burst in 2007 and sparked the global financial crisis. The result was a long period of deleveraging by households and businesses that restrained economic growth. That time, it took total nonfarm jobs six years, or until 2014, to rebound to their pre-crisis highs.

Then came the last recession, in 2020, which was caused by the onset of the global COVID-19 pandemic. It was short, lasting only a couple of months, but it was the deepest since the Great Depression, with gross domestic product contracting 28% as most everything except essential services came to a halt. Some 26 million Americans were thrown out of a job almost overnight.

Although the economy quickly rebounded, it was on the back of unprecedented government spending, which is something that Republicans — the party now in control of the government — are trying to reverse and surely have no desire to repeat.

The government’s stimulus funds created new job opportunities, allowing many to reevaluate their employment and career choices. When the economy began to open, the balance of power had shifted from employers to employees. Businesses found it hard to rehire workers they had let go, forcing them to offer higher wages. Quit rates soared as workers “job hopped,” either moving from employer to employer, depending on who offered better compensation, or starting businesses of their own. The surge in wages contributed to a jump in inflation rates throughout 2021 and 2022.

These disruptions linger in the mismatch between job openings and the hiring rate as measured by the Bureau of Labor Statistics. Although at 7.74 million listings, job openings remain above pre-pandemic levels and suggest a healthy labor market, the hiring rate has dropped to 3.4%, a level more associated with a recession.

The best explanation for this seeming contradiction is that those job openings are a mirage. They reflect an effort by employers, still stinging from their inability to hire back quality workers quickly as the pandemic eased, to build a backlog of as many candidates as possible in case an opening becomes available.

Other labor market metrics also signal now is not the right time to risk a recession. The labor force participation rate, at 62.4%, has started to turn down and is lower now than before the pandemic. Average hours worked per week, at 34.1, match the low seen during the early days of the pandemic in March 2020 (which also happens to be the lowest since the global financial crisis). Job-cut announcements totaled 172,017 in February, the most since July 2020, according to outplacement firm Challenger, Gray & Christmas.

Such labor market weakness and the lingering fallout from the last recession shows why the big risk is that the Trump administration misdiagnoses a downturn as a healthy adjustment, which is how FHN Financial macro strategist Will Compernolle put it in a recent research note. As Compernolle explains, Bessent’s use of the word “detox” is telling because it suggests the former hedge fund manager thinks the economy had become dependent on fiscal stimulus that is bad for its longer-term health. Here’s how he put it in the note:

“This perspective assumes labor and dollars previously attached to the federal government are smoothly reallocated to the private sector. Yet pandemic shutdowns showed that scars from abrupt, large-scale worker displacement and significant shifts in spending priorities can take years to heal. There may not be job openings for Forest Service rangers, research scientists, and highway engineers nearby, if there’s private sector demand for their skills at all. The longer it takes to fill the vacuum left by federal cuts, the more likely a negative feedback loop for falling incomes and consumer spending begins.”

Yet, this is the backdrop against which the White House is willing to risk a recession in the hopes that its tax and deregulation policies come together later this year to spur growth. Making such bets is more appropriate for a real estate developer like Trump or a hedge fund manager like Bessent, but it’s not something the government should be doing if it means people losing their jobs and their economic well-being.

As the saying goes, running a business is different from running the government; the goal of the former is profit maximization and the goal of the latter is welfare maximization.

Robert Burgess is the executive editor of Bloomberg Opinion. Previously, he was the global executive editor in charge of financial markets for Bloomberg News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.