The Goldilocks president says he wants to keep the boom alive: Don Pittis

While so many of us are holding our collective breath waiting for the next recession, U.S. President Donald Trump says he wants to do everything he can to avoid one.

Maybe he can fulfil his destiny, if not as the chosen one as he stated last week, but by channelling Goldilocks, famous for her interaction with the three bears.

For those few of you unfamiliar with the children's story antihero named for her hair colour, she was the one who, stumbling into the bears' cottage when they are out for a walk, avoids extremes and chooses to take the bears' chair, porridge and bed that are "just right."

In business, Goldilocks has become the symbol of the just-right economy.

While most economists accept that periodic recessions are inevitable — some even think they are useful — Trump is fervent in his determination to stop recession in its tracks and keep the economy just right. The European Central Bank and China seem to be on the same page, mostly in fear of the political fallout once the music stops.

Keeping the recession at bay?

On Friday, there were reports the ECB was about to pour on more stimulus. In China, despite a new exchange of explosive remarks with Trump in their escalating trade war, experts have said keeping recession at bay is essential to maintain the autocratic regime's grip on power.

Trump, who has repeatedly called on Federal Reserve chair Jerome Powell to cut rates to help boost the economy, on Friday castigated him as an "enemy" and sowed confusion by ordering U.S. companies to stop buying from China, putting markets into a new tailspin. Powell, meanwhile, worried that rate cuts were no solution to a continuing trade war.

At the G7 this weekend, one of the things the leaders were agreed on is that an economic collapse was something to be avoided.

As one of Canada's leading Keynesian scholars, Louis-Philippe Rochon, told me last week, there is a good reason politicians don't like recessions. They hurt.

"They're not good," said Rochon, founder of the Review of Keynesian Economics and professor of economics at Ontario's Laurentian University. "They tend to disproportionately hurt people in lower income brackets. There is a loss of wealth, loss of well-being."

As in Canada right now, when people have a lot of debt, job losses due to recession make things even worse, he said. But despite the pain they cause, there is a school of economic thinking that insists recessions are not only good but healthy.

A certain kind of conservative economist sees economic downturns as unpalatable medicine that kills off over-borrowed zombie companies and resets wages. At the other extreme, some Marxists have anticipated the downfall of capitalism so it can be replaced by a communist paradise.

Banning downturns

But can recession be avoided permanently? In the short term at least, the U.S. president seems to think the answer is to keep cutting interest rates. Last week he said he was also considering more tax cuts.

Meanwhile, Democrat supporters of Modern Monetary Theory seem to say a new burst of government spending can do the job. On Friday presidential hopeful Bernie Sanders proposed $1.6 trillion in new spending to transform the U.S. economy while creating new jobs.

But even if it works, can we keep doing it time after time? However we are managing it, a recent graphic from the Washington Post shared on Twitter showed the frequency of recessions in decline, though that was the not the accompanying article's intent.

Rochon seems to be of two minds on the issue. He agrees with "the MMTers" that governments have huge spending power when they need it to stimulate the economy into activity. Nonetheless, he says, "recessions are inevitable."

The answer to the economic contradiction is politics. At some point governments or the people who elect them decide government spending is bad, despite what Rochon says is good evidence to the contrary.

Rochon points to empirical research showing that sufficient government spending in the economy, such as during a war effort, can convince consumers and businesses that it is safe to spend and to invest, restarting a new phase of optimism and economic growth. However, that mood can change.

Spooked by spending

"You do have segments of the population who will get spooked, the sky will be falling," said Rochon, describing the process when a psychology of optimism turns to pessimism. Companies cut investments. Employers cut jobs. "Then the economy contracts."

Economies can also be hit by external shocks. The current trade war is an example.

But even the perfect Goldilocks economy, balanced and run by, say, a future global artificial intelligence, could still be battered by unforeseen events such as a major earthquake or a global outbreak of disease.

Writing for the World Economic Forum last week, economist Benat Bilbao-Osorio insisted that a global recession was not inevitable.

All that was necessary was for central banks to cut rates a little more and wise government leaders "to invest in those productivity-enhancing assets that will allow them to reap the long-term benefits of the Fourth Industrial Revolution."

Wise business leaders must keep investing and refuse to lay off staff. Everyone just has to work together, he said.

However, we don't have a global artificial intelligence or co-operative leaders to guide us. The U.S. has Donald Trump who, while insisting he wants to avoid recession, seems trapped in a series of self-destructive trade wars and battles with the central banker he appointed.

Perhaps a Goldilocks economy really is possible. Maybe recessions can be delayed if not prevented altogether. Maybe, as Powell implied on Friday, Trump just isn't going about it in the right way.

Follow Don on Twitter @don_pittis