MIT economist warns ‘signs are bad’ as potential recession looms

It’s day two of a stock market meltdown as speculation rises about what this might mean for the U.S. economy. 

Over the weekend, President Donald Trump refused to rule out the possibility of a recession this year, and the markets responded — the U.S. stock market has shed over $1.7 trillion. Then, the president announced today — and later rescinded — an additional 25% tariff on Canadian electricity, as well as a 50% tariff on all steel and aluminum that the United States imports from our neighbors to the north.

Here in Massachusetts, five of the largest publicly traded companies collectively lost over $21 billion in market value yesterday. Harvard University has implemented a hiring freeze , and Mass General Brigham is going through a second round of layoffs .

Jon Gruber, department chair and Ford Professor of Economics at MIT, joined GBH’s All Things Considered guest host Judie Yuill to provide some insight. What follows is a lightly edited transcript.

Judie Yuill: The last time you joined us was when the stock market took a deep tumble, but you cautioned listeners against panicking. What’s your outlook on the markets now with these current economic uncertainties?

Jon Gruber: Well, if you look at the last time I was on, markets really had taken a tumble, and they’d come back from that. Now, they’re gyrating again.

The advice for individuals is the same as it always is with the stock market, which is: The stock market is not a place to be if you need money any time soon. The stock market is a place where, over long periods of time, it has traditionally outperformed other ways to save your money. But over short periods of time — that is, periods of one to five years — it can do quite badly relative to other ways to save your money.

The stock market is not a place for gambling. It’s not a place for short-term saving. It’s a place to put your long-term savings and take advantage of the long-run growth of the U.S. economy and the historical track record of the stock market.

Yuill: Massachusetts is often pretty insulated from national economic shocks thanks to strong education, health care and tech sectors. But the state is already seeing institutions like Harvard and Mass General Brigham tightening their belts. What could that tell us about how vulnerable people might feel, and do you expect more cost-cutting measures?

Gruber: Now, let’s turn from the market to the economy. First of all, let’s make a very important point, Judie: the stock market is a bad indicator of the state of the economy. They often go together, but if we talk about what the state of the economy means for the average person, that is very different than the stock market, which is what it means for the profitability of some of our nation’s wealthiest companies.

So, let’s talk about a recession and what could be happening for the average person coming up. And here, the signs are bad. We look like we’re heading in the face of a slowing economy, and that’s really because President Trump has decided to ignore perhaps the fundamental rule of business, which is that businesses hate uncertainty.

Businesses want to make long-run decisions and understand the environment in which they make those decisions. Having no idea whether tomorrow: are tariffs going to be on or off? It makes it incredibly hard to make decisions, hire people and move the economy forward.

Yuill: What’s your take on this now, where you say it’s uncertain and it doesn’t look good — because you’ve seen this before. What are some of the markets that make you think we might be heading into a recession?

Gruber: I think the difference is: In August, it was a stock market gyration. The fundamental economic signals looked good. Now, I think it’s still too early, Judie, to say. Talk matters — the fact that Trump is saying, “Sure, a recession would be OK,” is bad for economic sentiment and the market.

But what we care about are solid numbers, and the numbers so far haven’t turned down that much. Hiring is down a little bit. Inflation may be up a little bit. So far, the numbers are holding okay.

I think it’s more just anticipating what we expect to happen with cuts in employment in the public sector, cuts in employment and education, and what I call “policy by petulance,” which is this incredible back-and-forth on trade barriers and other things, which lead to huge uncertainty.

Eventually, the economy is going to pay a price for that. It’s just a question of how big a price and when.

Yuill: What are you going to be looking for down the road, or even in the next few weeks or months, to indicate what might be happening?

Gruber: I think the main thing is always to pay attention to what’s happening to employment numbers. It’s sort of a monthly update on where things are and where things are going.

I’m particularly curious — I have no numbers on this recently — to look at what happens to business investment. As I said, in this uncertain policy environment, I think it’d be particularly interesting to track that.

Look, Judie, it’s too early to say anything, and it’s too uncertain. You know, Trump could turn around tomorrow and say, “I was just kidding. No more tariffs on anything, and I’m not going to cut education funding.” And things could be OK.

But I think the important takeaway I have is that the real risks for our nation are not really short term, they’re long term. If, for example, we cut university funding, that’s not going to cost that many jobs relative to our economy. What it is going to cost is the intellectual growth that drives our economy.

We are a knowledge, investment and innovation-based economy. That’s what made America great for 80 years. The base of that innovation — the base of this knowledge economy — is our world-leading universities. If we start cutting them, we’re going to pay a long-run price in terms of our ability to grow as a nation.

Yuill: In times of financial instability, consumers, ordinary, everyday working Americans start to wonder: Should I be doing anything differently? Whether it’s spending habits, job decisions or retirement planning, what advice do you have for people right now?

Burger: I would say that right now, you should be following the same, long-run investing advice that I’ve given — that any expert has given — which is, there’s no reason not to have your long-run retirement savings mostly in the stock market, but anything short term should be more flexible in things like cash or short-term bonds.

In terms of savings and jobs, I think I would just wait. I think it’s too early to know where this is heading and too early to start changing one’s behavior based on an uncertain environment. As I said, there are not strong enough indicators that, in the short term, things are going to become very bad.

My bigger concern — and the thing that voters need to pay attention to, especially those of us with children — is that this is a long-run crisis, a crisis of strength of our democracy, a crisis of investing in our future. These are much bigger, long-run issues. For short-term actions, it’s more vigilance and pushing back.