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A Call for Economic Action

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Over the last several years, I’ve really tried to focus my blog away from softer, feel-good issues and try to focus on the economy. I felt that by studying the economy and economic principles, I could make some sense out of our political decisions. So, with the election of Barack Obama I began to write more and more about a stimulus package. The more I read, the more it seemed that thoughtful decisions regarding the stimulus were being thrown out the window in favor of political expediency. Almost as soon as the stimulus package was passed, backlash over “government spending” started. All of the sudden, government spending became a bad idea. The fact that the government spending aimed to help Americans didn’t matter. This was bad.

Slowly, a tidal wave of austerity began to sweep through Washington and across the country. It is really unclear to me why everybody became convinced that the best way to fix the economy was to cut government spending. Cutting government spending was supposed to be better than the Lone Ranger’s silver bullet. Everything was going to be better once we were able to simply cut government spending. Consumer confidence would soar. Everyone would be happy.

Over the last 24 months we’ve not seen any of the great benefits that were supposed to come from austerity. The unemployment rate is still unacceptably high. Businesses are making money, but they’re not hiring. We’ve seen economists singled out by conservatives as geniuses only to find out that their data were flawed and their conclusions were wrong. We’ve seen European austerity measures completely and totally embraced and we have seen no true economic growth. If anything, we’ve seen economic contraction.

We need a new New Deal. We need an economy that is going to work for all of us. We need an economy that incentivizes those who work hard. We need an economy that doesn’t take advantage of those who are undereducated. We simply need a better economy.

By |2013-05-09T22:01:59-04:00May 8th, 2013|Economy|2 Comments

The problem with our economy

Job numbers are coming out today. I suspect that they will be a bummer.

From Robert Reich:

The Stalled Recovery

The U.S. economy was supposed to be in bloom by late spring but it’s hardly growing at all. Expectations for second quarter growth aren’t much better than the measly 1.8 percent annualized rate of the first quarter.

That’s not nearly fast enough to reduce our ferociously-high level of unemployment. The Labor Department will tell us Friday whether the jobs situation improved in May, but there’s been no sign of a surge in hiring. Nor in wages. Average hourly earnings of production and non-supervisory employees – who make up 80 percent of non-government workers – are lower than they were in the depths of the recession, adjusted for inflation.

Meanwhile, housing prices continue to fall. They’re now 33 percent below their 2006 peak. That’s a bigger drop than recorded in the Great Depression. Homes are the largest single asset of the American middle class, so as housing prices drop many Americans feel poorer. All of this is contributing to a general gloominess. Not surprisingly, consumer confidence is also down.

The recovery has stalled. It’s unlikely America will find itself back in recession but the possibility of a double dip can’t be dismissed.

The Problem of Demand

The problem isn’t on the supply side of the ledger. Corporate profits are still healthy. Big companies continue to sit on a cash hoard. Large and middle-sized companies can easily borrow more, at low rates.

The problem is on the demand side. American consumers, who constitute 70 percent of the total economy, can’t and won’t buy enough to get it moving. They justifiably worry they won’t be able to pay their bills or afford to send their children to college or to retire. Banks, with equal justification, are reluctant to lend to them. But as long as consumers hold back, companies remain reluctant to hire new workers or raise the wages of current ones, feeding the vicious cycle.

The timing is unfortunate. Foreign consumers won’t help much even if the dollar continues to slide. Europe’s debt crisis and embrace of austerity, Japan’s tragedy, and China’s fiscal tightening have reduced global demand. At the same time, the federal stimulus here has about run its course. The Federal Reserve is about to end its $600 billion of purchases of Treasury bills, designed to bring down long-term interest rates and make it easier for homeowners to refinance. Worse yet, state governments – starved for revenue and constitutionally barred from running deficits – continue to cut programs. Local governments are now in worse shape, laying off platoons of teachers and fire fighters. (more…)

By |2011-06-03T06:33:25-04:00June 3rd, 2011|Economy|Comments Off on The problem with our economy
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