Desperate times do not always call for desperate measures
This is a guest post by R. Glenn Hubbard, dean of the Columbia Business School and former Chairman of the Council of Economic Advisers under President George W. Bush, and Peter Navarro, a professor of economics at the Merage School of Business at the University of California-Irvine. They are the authors of “Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity.”
These seem like desperate times, particularly for incumbent politicians facing re-election. Here, we have an economy slowing once more below a 2% annual growth rate, even as the unemployment remains persistently high.
In response, a beleaguered White House wants yet another fiscal stimulus, while the Federal Reserve wants more easy money. This desperate fiscal and monetary policy response is, however, the very definition of insanity — using the same stimuli over and over and expecting a different result.
The fundamental flaw in Washington’s stimulus logic is the incorrect assumption that America’s current economic woes began with the 2007 recession. In fact, the roots of our slow-growth problem date back at least a full decade. From 1946 to 1999, GDP grew annually at 3.2 percent, but since then, we’ve only averaged about 2.5%. On a cumulative basis, this seemingly small difference adds up to about 10 million jobs we failed to create.
What these statistics add up to is not a short term cyclical downturn, but rather longer-term trouble driven by four major structural imbalances in America’s GDP “growth driver equation.”
Overconsumption:
The stimulus is working … just not for you
The following is a guest post by Bruce Yandle, distinguished adjunct professor of economics at the Mercatus Center at George Mason University and dean emeritus of the College of Business & Behavioral Science at Clemson University. The opinions expressed are his own.
Following the release of the Bureau of Labor Statistics July Employment report, President Obama and his advisors have been hammered about an unyielding 9.5% unemployment rate and a meager July job growth.
There are calls for more stimulus by some, less by others, and new defensive moves by a determined Federal Reserve Open Market Committee to shovel more monetary coal on the fire.
Since the passage of various federal programs in an effort to “save” the economy, the elusive recovery still lacks steam. Despite TARP-inspired bailouts of GM, Chrysler, and AIG; the large $862 billion American Recovery and Reinvestment Act passed in February 2009; Cash for Clunkers as well as actions taken by the FDIC, the overall economy remains in sad shape and the nation’s unemployment rate seems oblivious to the massive effort to bring it down.
But what if we just looked at the targeted sectors of the stimulus effort? After all, Congress did not pass legislation addressing the entire economy.
After examining the BLS employment growth data from July 2009 to July 2010 for a few major sectors, such as autos and banks and manufacturing, there were some that actually grew (see chart below).
At least someone finally mentioned the proposal to just give all tax-payers 10,000 dollars..
The talking heads can smoke up the room and make fancy speeches all they want, but the bottom line is that if every tax-payer had another $10,000 in there pocket.. a large number of them would have dumped it straight into mortgages or credit card debt.. thus helping to “bail out” the banks.
Sure you’d have a select few that don’t spend money wisely.. but heck.. thats what the banks did ANYWAY.. by giving bonuses and golden parachutes out like they were going out of style.
A rally that is both rational and crazy
(James Saft is a Reuters columnist. The opinions expressed are his own)
Stocks and other risky assets are rallying around the world this week because the Group of 20 nations said on the weekend they would keep the economic stimulus flowing, a state of events which illustrates where we are and what a very strange place it is.
The G20, the only group of big hitters that matters because it is the only group which includes the Chinese, met in Scotland over the weekend and, as is the way of these things, did very little with immediate consequences for anybody.
In the communique they issued, the Group of 20 finance ministers, after congratulating themselves on the recovery, more or less admitted that the measures we once thought of as heroic are in the process of becoming commonplace.
“However, the recovery is uneven and remains dependent on policy support, and high unemployment is a major concern,” the statement said. “To restore the global economy and financial system to health, we agreed to maintain support for the recovery until it is assured.”
Let me put that in human terms for you:
“We’ve spent untold trillions saving the economy, but, er, we’ve really only saved the financial system and that only to the extent that we keep on saving it. Jobs, well, not so much. We therefore pledge to continue doing this thing that may or may not be working until we are sure that it is.”
Property taxes, utility bills (you call them rates I think) haven’t changed and the towns and cities haven’t noticed that the bubble burst. In fact the property taxes and utility bills still creep upward due to their own COLA logic. This does not help the consumer who is supposed to be stimulating the economy through big consumer spending. None of this local taxation does anything to stimulate economic activity. It just sucks up income on more or less unproductive efforts. All town projects are really on hold. But it must be nice to work for the local schools or town hall. Talks with my dear old Dad remind me that this is what the Depression was like. You were well off if you worked for the Town or State government – but those days almost sound humane because town or state employees didn’t have contractual cost of living adjustments.
All the towns and cities may be doing is waiting until the dollar has inflated to levels where the assessments seem like they match and make sense again. Our houses won’t be more valuable, they will only sound like they are. But nothing much is selling so I can’t understand how that will ever work. Since the property in towns and cities has dropped appreciably in price and still aren’t selling, how can it ever get back, even with inflation, to the levels before the prices collapsed? There is some increase in the employment here but the wages haven’t risen. A very few more people can now pay their bills but those bills are getting larger. They have invisibly risen dramatically actually, because they are being based on assessments made at the peak of the bubble. But in visible terms they are still also rising.
It’s a little like living in an expanding universe and actually feeling the phenomenon.
Gee, I didn’t think any body got it. Our manufacturing base is sorely lacking. We can’t depend on construction and automaking alone. Thanks John. That was perfect!!!