Opinion

Felix Salmon

The X-shaped recovery

By Felix Salmon
July 10, 2009

Robert Reich blogs the recovery, and says something very similar to what I said yesterday in San Diego:

My prediction? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.

The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t “recover” because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin.

This is related to Mohamed El-Erian’s “new normal” idea — while previous recessions were part of economic cycles within a certain economy, what we’re going through right now is a painful disruption from that economy to something else. I fear that the flat or declining median wages, however, might well survive the transition — at least so long as unemployment continues to remain as high as it is now. Which is one reason not to worry overmuch about inflation: if consumer spending accounts for 70% of the economy, and consumers don’t have any money, it’s really hard for prices to rise very quickly.

Comments
4 comments so far | RSS Comments RSS

“something very similar to what I said yesterday in San Diego:”
I’d be interested to hear what you had to say (I’m assuming it was a talk or lecture of some sort?). Can you post a transcript?

Posted by Rockfish | Report as abusive
 

For the Stimulus, we should do the following:
1) A Sales Tax Holiday
2) Cut Payroll Taxes
3) Provide a Tax Credit for Hiring

If you want a big picture plan, I suggest the following:

1) Cut Defense Spending By 1/3
2) End the War on Drugs
3) Institute a Guaranteed Income
4) For Health Care:
A. Have the govt buy Catastrophic Care for Everyone: Imagine the bargaining power.
B. Have a Deductible based on income, which would be confined to medical expenses that can be priced and shopped by consumers.
5) Cut Taxes on Investment

 

“The economy always recovers.” And, previously: “housing prices always go up.” Hmmmm.

Posted by E L | Report as abusive
 

Don the lib still thinks a slew of tax cuts is the answer. Yup, no one has to pay for anything ever. That got us into the mess to begin with!

No wonder we can’t get out of our own way.

 

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