Yeah, I know, there are technical definitions of what constitutes a recession and a recovery. But if you’re unemployed, underemployed or given up on finding a job, you find none of those technical definitions unimpressive.
Anyway, this particular quote, in a nutshell, tells you why the “recovery” isn’t much to write home about:
Data released by the Bureau of Economic Analysis at the Commerce Department this morning shows that Americans earned a bit more, spent a bit less and saved more in June — all in line with economists’ expectations. Consumer spending drives about 60 percent of the economy, therefore, economists do not expect the recovery to take strong hold until American families feel secure enough and are earning enough to spend again. Unemployment, of course, remains a major drag on the economy.
So, while savings is good in general, it’s not good in a macro sense when you’re in a recession. And, as the quote notes (and I frankly think the number is low) when 60% of the economy is driven by consumption, increased savings and less spending is not a good sign. It’s all about confidence, and consumers simply aren’t feeling it.
That may be because of the last sentence which has my vote for the understatement of the year.
The good news, however, is there was nothing, apparently, “unexpected” about these numbers.
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Tim "Turbo Tax" Geithner has an op-ed in the New York Times entitled, "Welcome to recovery".
Or perhaps I should say that it is a litany of liberal talking points and just plain old fantasy. He has a list of indicators which he’d like you to believe prove we’re just around the corner from full recovery.
I don’t have the time to go through all of them, as much as I’d like too, but a couple caught my eye. For instance, jobs:
Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.
That’s just nonsense on a stick. If your best example is a major economic sector which may be adding 23,000 jobs a month, you haven’t much to crow about. Not when you look at the jobs that are going away each month. The reports are not good and pretending they are doesn’t impress anyone and makes what little credibility you might still retain suspect.
The auto industry is coming back, and the Big Three — Chrysler, Ford and General Motors — are now leaner, generating profits despite lower annual sales.
That’s either a flat out lie or it’s from a second set of books.
e21 points out that if you analyze the auto industry, the news is not good:
The auto companies are certainly not out of the woods yet. There has been a massive rebuild of negative working capital balances at GM (and Ford). What does that mean? Well, working capital is current assets minus liabilities – and it’s a good way to measure whether a company has the liquid assets to grow or build the business (and add shareholder value). Positive working capital is also a useful measure for gauging a company’s financial resilience. Negative working capital, on the other hand, means that current liabilities exceed assets – and a firm in this situation can’t spend as aggressively.
How massive is the “rebuild of negative working capital?” Massive:
Those are monthly figures (GM’s only from Jul 09 when it emerged from bankruptcy). There’s nothing in those figures that makes any sort of case that the companies are turning a profit. In fact, if you look at what e21 says, it is clear that they’re still doing what got them into the shape they were in previous to the financial downturn.
Certainly their position hasn’t been helped by slow auto sales (even during the “recovery”), but what all of them could use is some investment help. Ford could possibly get it but it is also possible investors are not likely to risk their capital on an industry that has a government presence. Again e21 explains:
The roughshod methods that were used against bondholders in the bailout, the questionable methods used to pick winners and losers in the rush to close thousands of auto dealerships and the favorable treatment given to the unions (followed by the codification of this policy in the Orderly Liquidation Authority in the Dodd-Frank financial regulation bill) serve as the case study for why investors and lenders will be skittish about lending or investing in U.S. companies that have a big union presence and/or would be deemed Too Big To Fail by the government.
And then there’s all the money they owe under TARP.
Like I said, just two of the many examples which are pure fiction.
The rest of his article is an attempt to write a favorable history of the government’s effort – but those who watched it and assessed its results aren’t particularly impressed. Geithner ends his ramble with this:
And as the president said last week, no one should bet against the American worker, American business and American ingenuity.
No one should be at war against any of those either, yet this administration has been at war with the financial industry, the energy industry and business in general from it’s first day in office. Perhaps it is time for a little internal administration introspection – honest introspection – with the aim of determining whether they’re part of the problem of part of the solution. If they actually did that, they’d have to honestly assess themselves as part of the problem. Geithner’s fantasy piece is all the proof you’ll ever need to know that will never happen.
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In today’s NY Times, Robert Schiller laments the lack of jobs brought by the “stimulus”. Essentially, he posits, government focus is on the wrong thing. Instead of boosting the GDP, the “stimulus” should be focused on creating jobs. And where should government be focusing that effort?
Why not use government policy to directly create jobs — labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research?
Would this be an effective use of resources? From the standpoint of economic theory, government expenditures in such areas often provide benefits that are not being produced by the market economy. Take New York subway stations, for example. Cleaning and painting them in a period of severe austerity can easily be neglected. Yet the long-term benefit to businesses from an appealing mass transit system is enormous. (This is an example of an “externality,” which the market economy, left to its own devices, will neglect.)
The problem with this idea, of course, is nothing is really produced. In fact, the focus on kicking up the GDP isn’t the wrong focus. And trying to produce make-work jobs or “service” jobs don’t help with that. They certainly would keep those who got the jobs busy, but a clean subway will not lead to more jobs elsewhere.
The tendency to think like this is apparent among a certain set who believe that spending money on jobs, whatever the sector and whatever the labor, make a difference. A job is a job is a job.
But it isn’t. Government jobs are not jobs that “produce wealth”. They consume wealth. And they don’t certainly don’t produce jobs that do produce wealth.
That comes in the private sector where people produce things – to include services – that other people want and that old “voluntary exchange of value between two people” takes place and produces wealth, which in turn kicks up the GDP.
It is wrong-headed to think the government can “stimulate” employment by employing people in non-productive, busy work jobs.
If government has a role in a recession or depression it should be to clear the way with less regulation and provide the incentives through tax breaks for businesses to hire and expand.
What is hold all of this up at the moment is the unsettled tax picture and regulation regime as well as new legislation the business world is still trying to digest and pending legislation which would further complicate recovery. It isn’t rocket science. Until the marketplace is much more settled than it is now, no jobs are going to be created and now businesses are going to expand.
You can paint and clean all the subway systems in the US and it won’t make any difference. The mid-term elections, however, may. If the GOP takes the House and closes the gap in the Senate, you may start to see some hiring and some expansion, based on the belief that the worst is over – governmentally that is – and perhaps it is now safe to begin the long, slow process of recovery.
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William Gale regales us with what he calls "Five myths about the Bush tax cuts" , in the Washington Post today.
Highlights, or lowlights if you will, of a couple of them are as follows. “Myth” one:
Extending the tax cuts would be a good way to stimulate the economy.
And the ammo that makes it a myth:
According to the Congressional Budget Office and other authorities, extending all of the Bush tax cuts would have a small bang for the buck, the equivalent of a 10- to 40-cent increase in GDP for every dollar spent.
So a 10% to 40% increase in GDP – at this time – is something to sniff at? Note how he worded the increase. He used the word “cent” instead of “percent”. Yeah, no attempt to shade the point at all, huh?
As the CBO notes, most Bush tax cut dollars go to higher-income households, and these top earners don’t spend as much of their income as lower earners.
Right. A) they’re the ones who actually pay taxes – many lower income earners do not. B) “Spending” is a loaded term. The high income earners don’t bury their money in the back yard safely tucked into a coffee can. They invest it. And, for those paying attention, it is investment in the economy that’s lacking at this time.
The rest of the “myths” are as pathetically argued as the first.
In reality, this is just another in a long line of liberal justifications for taking your money based in the premise that it isn’t really yours to begin with.
If you don’t believe me, look at “myth” 3 which states “Making the tax cuts permanent will lead to long term growth. Gale says:
A main selling point for the cuts was that, by offering lower marginal tax rates on wages, dividends and capital gains, they would encourage investment and therefore boost economic growth. But when it comes to fostering growth, this isn’t the whole story. The tax cuts also raised government debt — and higher government debt leads to higher interest rates.
Note that Gale tacitly admits that the "myth" is actually true. However he tries to caveat that with a horrible result that I assume he believes effectively destroys the point. The tax cuts “raised” government debt.
Uh, no, they didn’t. Excessive government spending without the revenue raised government debt. These tax cuts have now been in place for years and government debt has grown exponentially. How is that the fault of a tax cut or the tax payer?
Of course it’s not – unless you believe that money, all money, really belongs to government and it gets to decide how much you can or can’t have. How else do you claim allowing an earner to keep more of what he earned as a cause for "increased government debt?"
Of course Gale forgets one of the aspects of letting the tax cuts expire – but I suppose that’s because it’s not a "myth" in his book. A recent study finds the following to be true as a result of letting the Bush tax cuts expire:
The study found that raising just the lowest income tax rate from 10 percent to 15 percent would cost 88 million taxpayers an average of $503 next year.
Lowering the child tax credit from $1,000 to $500 per child would cost 31 million families an average of $1,033 in 2011; the reinstatement of the so-called marriage penalty, a peculiarity in the tax code that forces some married couples to pay more for income tax than they would if they were single, would cost 35 million couples an average of $595 each, according to the preliminary numbers.
Income tax rates will rise for almost every bracket, with the bottom rate going from 10 to 15 percent and the top rate going from 35 percent to 39.6 percent. Dividends and capital gains taxes also are expected to rise.
So the “your taxes won’t increase by a single dime” pledge for the gullible 95% was a crock and they should have known that when Obama promised to end those tax cuts. But it’s hard to do that when you’re also gulled into believing that they were only tax cuts “for the rich”.
In fact, they were across the board tax cuts and now the middle-class will discover that at the end of the year as they crank up the Turbo Tax and are shocked, shocked I tell you, that their taxes have increased.
And that’s no myth, my friend.
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When you accuse someone of stupidity, it’s probably wise to avoid saying something stupid yourself while doing so. Sadly, E.J. Dionne fails to avoid that trap.
Our discussion of the economic stimulus is another symptom of political irrationality. It’s entirely true that the $787 billion recovery package passed last year was not big enough to keep unemployment from rising to over 9 percent.
But this is not actually an argument against the stimulus. On the contrary, studies showing that the stimulus created or saved up to 3 million jobs are very hard to refute. It’s much easier to pretend that all this money was wasted, although the evidence is overwhelming that we should have stimulated more.
Very hard to refute? That’s nonsense on stilts. Mr. Dionne may be so smart that rays of light emanate from his brow, but the paragraph above is an extraordinarily foolish position.
First, any statement of any jobs “created or saved” requires that we perform the impossible task of modeling how the economy would have performed in an alternate universe where a different policy mix was applied. We literally have no idea–nor any way to construct a testable hypothesis–that models how the economy would have reacted in the absence of the stimulus. Even the Congressional Budget Office, while rather supinely delivering a report that ostensibly supported the administrations claims about job creation, was careful to note:
…it is impossible to determine how many of the reported jobs would have existed in the absence of the stimulus package.
Second, the methodology was extremely suspect. In making its predictions of post-stimulus recovery, the administration simply plugged in an assumption about the multiplier effect of government spending. They assumed that X amount in spending would result in Y% increase in aggregate demand, resulting in Z jobs. What the CBO did in checking up on that prediction, was to plug essentially the same assumptions into their model, which, unsurprisingly, “confirmed” the predictions. Even the CBO seemed a bit embarrassed about that.
But the CBO, to its credit, has been fairly forthcoming about its methods and their limitations. In response to a question at a speech earlier this month, CBO director Doug Elmendorf laid out the CBO’s methodology pretty clearly, describing the his office’s frequent, legally-required stimulus reports as “repeating the same exercises we [aleady] did rather than an independent check on it.” CBO tweaks its models on the input side, he says—adjusting, for example, how much money the government has spent. But the results the CBO reports—like the job creation figures—are simply a function of the inputs it records, not real-world counts.
Following up, the questioner asks for clarification: “If the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis, right?” Elmendorf’s response? “That’s right. That’s right.”
In other words, the CBO’s regular, legally-mandated reports, are estimates based on an economic model that doesn’t actually take inputs from the real world. They simply take the same estimates the administration used to create their predictions, then apply them to the monthly spending report, coming up with a number of jobs “created or saved” that is, unspurprisingly, exactly what the administration predicted.
Please note: this has no actual relationship to the number of real-world jobs that exist. The only thing the CBO reports prove–by its own admission–is that it is possible to replicate the administration’s predictions by duplicating the assumptions.
So, not only is it untrue, as Mr Dionne asserts, that “studies showing that the stimulus created or saved up to 3 million jobs are very hard to refute,” the CBO director explicitly refutes that notion by agreeing that “[i]f the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis.”
But, let us say, arguendo, that Mr. Dionne is right, and the $787 billion did, in fact, create 3 million new jobs. The price tag then, comes to $262,333.33 for each job created. That seems like a relatively steep price.
Happily, we know more or less precisely how many people are employed in the country, and how the size of the labor force has changed. We know this, because the Bureau of Labor Statistics releases those figures on a monthly basis, and they are publicly available at the BLS web site. If we assume March 2009 to be the first month of the stimulus, we see that there were a total of 140,854,000 Americans over the age of 16 employed, including farm employment. As of Jun, 2010, there were 139,119,000 Americans working. That tells me that there are 1,735,000 fewer Americans working today, than there were when the stimulus was passed. If we exclude agriculture, and look at only non-farm payrolls, we see that there were 132,070,000 people employed in March, 2009, vice 130,470,00 in June, 2010. Again, that’s a net loss of 1,600,000 payroll jobs.
I’m not seeing any net job creation there.
In at least one sense, though, Mr. Dionne is quite right. Since the administration’s claims of 3 million jobs “created or saved” is empirically disprovable, they can tout them as much as they’d like, even in the face of 1.6 million jobs actually disappearing under the stimulus. After all, they can always say, “There would have been 3 million fewer jobs if we hadn’t acted. And if you don’t believe me, prove me wrong!” It is, after all, so comforting to be able to take refuge in an unfalsifiable hypothesis.
The situation in California is critical with government there facing a 19 billion dollar shortfall and the budget yet to be passed. It pits an admittedly "moderate" Republican governor against a Democratically dominated legislature and their differences on how to close that huge budgetary hole.
The lack of a budget is forcing furloughs and the possibility of the state again issuing IOUs instead of payments to vendors, etc.
Until the governor and legislature negotiate that budget, not much will change. And the fight is classic:
Schwarzenegger has proposed slashing spending to balance the state’s books, an approach rejected by Democratic lawmakers. Their leaders in the state Senate and Assembly are trying to draft a joint plan likely to include proposals for tax increases to rival the governor’s budget plan.
There it is. Where the governor sees government as having to yeild and reduce itself, the legislature views government – at the size and scope it now occupies – to be a nonnegotiable necessity and entitled to more taxpayer cash to preserve it as is.
Funny that the "conservative" position in this fight – i.e. the attempt to maintain the status quo – is that of the "progressive" party in California.
However, the cut spending/more taxes fight is, in a nutshell, the difference between the two parties right now. I used to say there isn’t a dime’s worth of difference between the two (and on many issues that’s still true) but in terms of how to balance a budget, the “reduce government/ reduce spending” approach seems to now be solely owned by the GOP.
Whether or not they’ll actually do that should they again find themselves in the position of power to do so is obviously another question entirely.
In the case of the Democratic party – they’re now a wholly owned subsidiary of government unions, and their pandering to these unions is both short-sighted and destructive. The party that used to be able to claim the mantle of the working man’s party is now almost exclusively the government union worker’s party. And of course that means keeping government large and well funded.
It’s going to be interesting to see how this fight comes out – but even with Schwarzenegger representing the GOP side of things, it is clear which side is the taxpayer’s friend.
Democrats and President Obama have been talking the talk about deficit reduction – yesirree. Why to hear them talk about what has to be done, you’d think they were the second coming of the Republican caucus.
But when it comes to walking the walk? Not so much:
A new White House forecast predicts that the federal budget deficit, which hit a record $1.4 trillion last year, will exceed that figure this year and again in 2011.
The $1.47 trillion budget gap predicted for 2010 — when 41 cents of every dollar spent by the federal government would be borrowed — represents a slight improvement over the administration’s February forecast. The estimated gap for next year, $1.42 trillion, is larger than what was predicted in February, primarily because of a drop in expected tax receipts from capital gains.
So here the government is in one of the biggest fiscal holes it has ever dug for itself, and the answer the Democrats come up with is “let’s dig it deeper and call it ‘fighting the deficit’”.
How else do you explain budgets like the one offered by the Obama administration and especially in light of Tim Geithner’s pronouncement yesterday (see below) that it was time for the private sector to start investing? Forty one cents of every dollar spent under this budget from President Obama will be borrowed.
Of course, Obama has told us that the goal is to balance the federal budget by 2015. That’s what he’s said – and for what its worth, that’s certainly a worthy goal. But you have to do more than try to talk it down. The action taken have to reflect that goal. And this budget doesn’t. Nor, really, do his future ones.
The Committee for a Responsible Federal Budget reviewed this year’s presidential budget proposal and the deficit reduction plan and this may come as a surprise to you, but it is all smoke and mirrors.
The budget proposes $3.8 trillion in spending and receipts of $2.6 trillion, resulting in a deficit of $1.3 trillion – or 8.3 percent of GDP. This is higher than the 7.4 percent deficit projected from the Administration’s proposals in its August Mid-Session Review (MSR) and significantly higher than the 6.0 percent deficit projected under their “current law” (BEA) baseline. It is a decrease from the 9.9 percent deficit in FY 2009, and the projected 10.6 percent deficit in FY 2010.
Over the ten year window from 2011 through 2020, deficits are estimated to total $8.5 trillion – or 4.5 percent of GDP. This is significantly higher the $5.5 trillion (2.8 percent of GDP) deficit projected under “current law” which assumes expiring policies would end as planned.
Or under the “current law”, deficit stays at 6% of GDP (still too much) but under the “deficit reduction/balanced budget” plan of the administration, it balloons up to 8.3% GDP (way freakin’ too much).
So we’re being sold a load of unicorns with this totally misleading nonsense being spouted by Obama and Democrats. Their budgets do only one thing for deficits (and the debt) – they add to them. And, if followed, by 2020, here is what the debt will be:
Under OMB’s new estimate of the President’s budget, the debt held by the public would grow continuously as a share of the economy, passing 60 percent this year, 70 percent in 2012, and 77 percent in 2020.
Now someone, anyone – tell me how this plan of theirs reduces the important number in all of this – the debt? Obviously it doesn’t. They’re talking about spending less borrowed money than they have previously, that’s all. And when you are spending trillions in deficits, dropping it down to 900 billion in deficit spending is “deficit reduction”.
Don’t let them sell you the bill of goods they’ve prepared here.
Cut spending, cut it now and do what is necessary to reduce the debt.
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hat do you do if you’re a politician and you promised that if you did something good results would be assured. And then you did it and, in fact, things got worse?
Well that’s the situation the administration faces. It claimed that the "stimulus" was a bit like a FedEx package – something that absolutely, positively had to be done or we would be facing horrific unemployment – over 8%. So the Democratic Congress (alone) jammed through a pure pork package of almost a trillion dollars and sure enough unemployment which was below 8% at the time, eventually shot to 10% (and has now receded to 9.5% "officially").
Faced with that, what the administration has decided to do is run Tim Turbo Tax Geithner, the Secretary of Treasury, out there and pretend like the “stimulus” worked. No, seriously, that’s their plan – damn the facts, go out and essentially say they’ve got the economy in good enough shape that they can now step back and let the private sectors take over:
Treasury Secretary Timothy Geithner said the economy has now recovered sufficiently for government to begin to make way for private business investment.
Mr. Geithner’s comments on Sunday, which echo previous sentiments expressed by President Barack Obama, reflect a turning point in the government response to the worst economic downturn since the Great Depression, a period marked by deep federal intervention in the financial, housing, auto and other industries.
“We need to make that transition now to a recovery led by private investment,” Mr. Geithner said Sunday on NBC’s “Meet the Press.”
Now that takes some stones. To pretend that government intervention has done much of anything requires Hillary Clinton’s “willing suspension of disbelief”. The GDP is limping along in the 1 to 2% growth area, debt has shot through the roof, unemployment remains stubbornly high (and higher than when government “stimulated” the economy) and legislation passed by this administration – and its legislative agenda – has businesses sitting on the sidelines with a pile of money and refusing to participate because of the unsettled business climate.
However, running this meme allows the administration to step back from its failure by calling it a success and passing the blame, now, to the private side. This can have a two-fold effect for them if they can successfully run this bluff.
For one, they can claim the private sector is to blame for continued weakness. That’s very useful to them. Why? Because it sets up what they really want – a second stimulus and more government control.
“There’s going to be a good case for the government preserving some type of guarantee to make sure people have the ability to borrow to finance a house even in a very damaging recession,” he said on “Meet the Press.”
He said the administration would begin developing such a program very soon. “We’re going to take a careful look at a set of reforms that are going to be good for the country going forward and don’t leave us vulnerable to this kind of crisis in the future,” Mr. Geithner said.
And it provides something this administration desperately wants and needs: a scapegoat.
Of course, with midterms coming soon, this may end up being an attempt that is too little and too late. But frankly I don’t think it will take. It is far too cynical an attempt to sell something that already smells terribly rotten. Just as the majority saw through the attempt by Obama to claim that the “stimulus” didn’t have a gram of pork in it (as stated earlier, it was pure pork), they’ll see through this attempt to sell “the economy is better and it’s because of the “stimulus”” that Geithner is attempting here.
This, as usual, is more about political posturing and meme creation than it is about reality. And with this administration, that’s something people have already come to recognize and dismiss.
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You may have figured out by now that I think we pay much too much to government in taxes and that I’m usually all in favor of anyone who figures out how to dodge them legally.
However, there are exceptions to that rule, and all politicians are one of them. If they’re going to make tax law, pass tax law and stick it to all of the "little people", then they should strictly abide by those laws at all levels and not seek to dodge taxes. Especially if they’re the type who have never met a tax they didn’t like.
Call it part of the price they must pay – literally and figuratively – for that power.
John Kerry, or as Jules Critenden calls him, Thurston Howell III (from Gilligan’s Island) has apparently decided that taxes are strictly for the little people and, by the way, job opportunities aren’t his responsibility.
Mr. Howell, er Kerry (who, it is rumored, once served in Vietnam), recently purchased a luxury yacht. The Senator from Massachusetts, however, won’t be docking the yacht there. Instead Rhode Island is his port of choice:
News that Kerry was docking the 76-foot custom-built sloop in Newport, R.I., was first reported in the Herald Friday. Sources told the Herald the yacht cost $7 million, meaning Kerry would owe the state more than $500,000 in excise and sales taxes.
Tsk, tsk – is that a good example to set, sir? And that’s not all that’s rankled the good folks of Massachusetts (who, by the way, with Romneycare, have the highest insurance premiums in the US). The yacht was foreign made, while ship builders in Massachusetts claim that it could have just as easily been built there:
With the nation enduring a nasty economy, painful joblessness and extreme belt-tightening, word of the luxury yacht’s foreign construction – as Americans yearn for work – could create a political tempest for Kerry.
“The message is, ‘The American boat builders aren’t good enough, and the Massachusetts people aren’t good enough to maintain it.’ It’s just a bad message all around,” said Connecticut boater Steve Potter, who docks in Charlestown.
Mr. Kerry’s reaction? Why the great and powerful Oz works in mysterious ways:
When asked to respond to criticism of Kerry’s decision not to buy American, his state director, Drew O’Brien, said: “When it comes to creating and preserving jobs and economic opportunity in Massachusetts, no one has worked harder in Washington than John Kerry. Sen. Kerry is using smarts, clout and good old-fashioned hard work to make the Massachusetts economy grow and prosper.”
Yeah, it’s really hopping, isn’t it? With an unemployment rate over 9%, I guess that’s good enough that the additional jobs "created and preserved” by having the yacht built in his home state just didn’t qualify as “smarts”.
Great example set there, Mr. Kerry. If this is an example of the “smarts” you employ, everyone should be on their knees thanking the deity of their choice for the fact that you lost the presidential election and didn’t get anywhere near the Oval Office.
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Of course you an find “experts” who will point to each and say that’s our future. USA Today has a list of them in an article which explores the title question. It appears most believe it will be the latter – a slow recovery. But some are worried about signs that the present situation compares very closely with the 1930s.
And, in many ways it does. We continue to see weakness everywhere. And it appears until we get the housing market squared away (housing starts down 5% this month) and some other areas cleaned up, plus get some hiring going on, it is going to continue to be rough out there.
Jobs continue to be key to the recovery (we are a consumer driven economy – no job, no money. No money, no consumption) so the faster we can employ the jobless, the faster we see the recovery take off. However, that’s a huge undertaking:
The national unemployment rate stands at 9.5%, or more than 14 million Americans, says the Department of Labor, far below the peak unemployment rate of 25% during the Great Depression. But those numbers don’t fully convey the jobs weakness. Another 8.6 million people are working part time because they can’t get full-time jobs. And 3.8 million, discouraged by the dearth of job opportunities, are out of work but were not counted as unemployed.
So while not at 25%, we’re most likely somewhere in the 14% range in real terms (not the politically motivated U3 of 9.5%).
"If you’re not making money, it’s pretty hard to spend it," or pay bills, Johnson says. "There’s no fuel in the economic engine to make it grow. People are spending less and saving more."
This, of course, is where the impetus comes from to claim if the people can’t spend, the government should. We’ve seen, first hand, how that’s worked out – unemployment went up and stayed up. And “more” wouldn’t have made any difference as is now being argued.
The answer isn’t government spending – not in a consumer driven economy. No, the way you help solve this problem, if you’re government, is to incentivize business expansion and thereby hiring to drive consumer spending. Instead, the policies of this administration, at least to this point, have businesses on the sidelines sitting on both their hands and their money.
Further crimping the outlook for future growth is the fact that cash-rich U.S. companies, despite improving profitability, are still leery of the recovery and are reluctant to deploy that money to grow or hire new workers.
"Companies have pared their expenses dramatically, upgraded their technology, improved their profit margins," Johnson says. "But they are not hiring more people, because they would have to see greater demand to do so."
Once again, the government can’t create that “greater demand” via “stimulus”. That demand has to come from consumers. Those are the customers businesses rely on to generate demand, and with about 14% in the unemployment/underemployment mix, that demand simply isn’t there – or, at least, not enough to expand and hire.
Catch 22? In a way. So what can government do?
Cut business taxes. Get out of the way. Provide incentives to expand and hire (accelerate capital equipment depreciation for instance, if bought now).
There are lots of ways short of spending us into oblivion that the government can positively effect the market and the business climate. Unfortunately, as Mort Zuckerman has stated and the business community as a whole believe, we have an “anti-business” administration in charge right now – and that further unsettles the situation. Perception being reality, as long as the business community believe that, not much is going to change.
So, there’s your day’s sunny outlook on the economic front. As Donald Luskin says:
"The only way to get out of debt is to earn money," Luskin says. "The only way to get out of recession is to grow. If you kill growth, you are" in trouble.
And right now, we’re in trouble.
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