The Great Debate

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.

– Peter Morici is a Professor at the Smith School of Business, University of Maryland, and former Chief Economist at the United States International Trade Commission. The views –

The economy continues to bleed jobs, even as GDP rebounds. Employment may be a lagging indicator, but job losses should have abated by now even if a lot of new jobs are not being added.

Coming off a deep recession, GDP growth should have been much stronger than the 2.8 percent recorded in the third quarter. A poorly conceived and badly executed stimulus package and the failure to correct structural problems that caused the Great Recession are holding down growth.

For most policymakers, deflation is the stuff of nightmares -- scarier even than bank failures and stock market collapses. As the economy stumbled, deflation became Lords Voldemort and Sauron rolled into one.

In recent months, however, this economic supervillain seems to have lost its power to intimidate.

With growth reviving, many economists now believe that deflation is highly unlikely to materialize.