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Please take your eyes off the stock market and focus them on this morning's report about gross domestic product. It's dismal. I'll let Catherine Rampbell, of the New York Times, explain:
The country’s gross domestic product, a broad measure of the goods and services produced across the economy, grew at an annual rate of 1.3 percent in the second quarter, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent . Both figures were well below economists’ expectations.
Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated. Indeed, the latest figures show that the nation’s economy is actually smaller than it was in 2007, when the Great Recession officially began.
“The word for this report is ‘shocking,’ ” said John Ryding, chief economist at RDQ Economics. “With slow growth, higher inflation and almost no consumer spending growth, it is very tough to find good news.”
Very tough indeed. And why is the economy growing so slowly? Consumer demand is flat. Governments are laying off workers. Businesses have plenty of cash but are afraid to spend it because they don't see demand for more goods. Yes, you've heard this story before.
Meantime, in our nation's capital, Democrats and Republicans are debating whether to reduce deficits in ways that will merely shrink the government or decimate it. Although negotiations are very fluid, the spending cuts will likely begin right away, sucking more money out of the economy at a time when we should be putting more government money into it. In other words, we are talking about enacting economic policies that could actually slow down the economy even more.
But maybe that conversation can change, just a little bit. As recently as a week ago, when President Obama and House Speaker John Boehner were discussing a compromise deal on deficit reduction, they had agreed in principle to include an extension of unemployment insurance and a renewal of last year's payroll tax break. The boost to the economy would have been relatively modest -- maybe a million jobs, give or take. But at this point it'd be a lot better than nothing. Neither the Reid nor the Boehner proposals have these measures. And, last I heard, nobody was trying to restore them. But the debate isn't quite over yet. As Adam Serwer writes today, "I know that additional stimulus measures would make any compromise even less likely to pass the House, but given the state of the economy, it’s crazy for Dems not to try."
And afterwards? Making the case for measures that would boost job growth isn't easy, given public perceptions. But it's worth trying anyway, particularly when there are so many good ideas out there.
Update: I originally said we're talking about policies that could prolong the recession. But, of course, we're not in a recession right now. It just feels like it.
"Democrats and Republicans are debating whether to reduce deficits in ways that will merely shrink the government or decimate it. Although negotiations are very fluid, the spending cuts will likely begin right away, sucking more money out of the economy at a time when we should be putting more government money into it. In other words, we are talking about enacting economic policies that could actually make the recession, and unemployment problem, worse."
This a twofer for the Republicans. They get to both reduce the size of the government and increase the unemployment rate. The latter will enhance their chances of taking the White House and perhaps the Senate in 2012. Who gives a rat's ass ab ... view full comment
"Democrats and Republicans are debating whether to reduce deficits in ways that will merely shrink the government or decimate it. Although negotiations are very fluid, the spending cuts will likely begin right away, sucking more money out of the economy at a time when we should be putting more government money into it. In other words, we are talking about enacting economic policies that could actually make the recession, and unemployment problem, worse."
This a twofer for the Republicans. They get to both reduce the size of the government and increase the unemployment rate. The latter will enhance their chances of taking the White House and perhaps the Senate in 2012. Who gives a rat's ass about the suffering it will cause. Now, if they can just convince most Americans that it's all the fault of those socialistic, job-killing Democrats. Calling Karl Rove!
Well, clearly increasing unemployment decreases revenues; thus increasing the deficit.
Meanwhile, rich people can go out and buy property and all sorts of other stuff at fire sale prices.
Thus, they get even richer and the middle, working class and poor lose everything we've got.
Swell.
Well, clearly increasing unemployment decreases revenues; thus increasing the deficit.
Meanwhile, rich people can go out and buy property and all sorts of other stuff at fire sale prices.
Thus, they get even richer and the middle, working class and poor lose everything we've got.
Swell.
As to why the economy is faltering: simple, imo.
It has nothing to do with science. It's all about faith. Huge, intricate countries and their economies run on faith, pure and simple. The boss has faith his employees will come to work. They have faith their job will be there. When we get on an el train or a bus, we have faith the operators will do their jobs. We cross a bridge, we have faith it won't collapse. We get on a plane, we know that Boeing and Airbus and all the people in the transit system did their jobs right, will do their jobs today, and the wings won't fall off and we won't collide with another plane.
We walk down that little jetway into the most improbable of structure ... view full comment
As to why the economy is faltering: simple, imo.
It has nothing to do with science. It's all about faith. Huge, intricate countries and their economies run on faith, pure and simple. The boss has faith his employees will come to work. They have faith their job will be there. When we get on an el train or a bus, we have faith the operators will do their jobs. We cross a bridge, we have faith it won't collapse. We get on a plane, we know that Boeing and Airbus and all the people in the transit system did their jobs right, will do their jobs today, and the wings won't fall off and we won't collide with another plane.
We walk down that little jetway into the most improbable of structures: a giant metal bird weighing hundreds of thousands of pounds - that defies gravity and flies!
We created this, this is magnificent - and it couldn't have been done if people hadn't believed in themselves and in each other.
Right now, and with good reason, we have no faith in the fundamental structure of our country, we absolutely have no faith in our bosses, because the past few decades have gradually made an impression on us: we can't trust them. We can't trust our jobs, they can disappear and/or explode into something unmanageable at any time.
We have relied upon and trusted The United States of America and that for which it stands - but now - that's being threatened by a group of radicals intent upon shredding the very fabric of the state, the social and economic networks that support it. They want to "fix" it.
Meanwhile, they deny climate and other environmental science, deprive the poor of health care, attack human and animal rights, declare environmental protections are "job killers" and meanwhile, export jobs overseas, refuse to pay their taxes and viciously attack our president and claim he wasn't even born here. The GOP VP candidate was clearly a rabble-rouser who spoke to something vicious and low in the American psyche. The genie won't go back into the bottle now.
So, why SHOULD the economy be doing well? It takes an act of will to keep on truckin' these days because the future is extremely cloudy. I know a lot of people who are struggling with serious depression and fear, because the future is apparently dark, nasty and hard. And people who are depressed can't function well, they get sick, they don't produce, they do jack.
Nobody can make money when the people despair. And, nothing in the news explains why we shouldn't despair. I heard a report on the drought situation in Texas, on the burning forests, the starving cattle, the dying crops, and now - the rain will come from a tropical storm and ruin the dry-weather crop just in time for the harvest: cotton. Meanwhile the governor wants to fill a stadium with the faithful and pray, instead of offering real-word solutions to mega-problems we helped created and therefore can help solve.
We gotta get a grip, asap.
Sophia. Economics is now a Science-- has been for over 60 years. And Keynesian theories are the only onles that explain the available data. Part of economic theory, but not all, does involves public perceptions-- but such perceptions (faith) go just so far. I don't care how much faith you have that cutting spending in a lquidity crisis will create jobs-- it won't work. Any more than how much faith you have that you can bail out of a plane at 30,000 feet and bounce off clouds counts for anything. In physics, there is this thing called gravity that yields not to faith.
Sophia. Economics is now a Science-- has been for over 60 years. And Keynesian theories are the only onles that explain the available data. Part of economic theory, but not all, does involves public perceptions-- but such perceptions (faith) go just so far. I don't care how much faith you have that cutting spending in a lquidity crisis will create jobs-- it won't work. Any more than how much faith you have that you can bail out of a plane at 30,000 feet and bounce off clouds counts for anything. In physics, there is this thing called gravity that yields not to faith.
confidence is my word choice, not faith.
before my industry was gutted (bi-partisan stupidity in Washington DC between 1978-2001, I published an economic forecast twice a year.
The jobs are gone. Manufacturing was gutted 1978-2001, and 3/4 of the jobs created 2001-2007 were in the housing bubble, and those jobs are now gone.
The Dems won back Congress 2006-8 because voters thought they were getting the fiscally responsible party of Clinton. Wrong. The GOP won the House back because
well, what is the point. I have no intention of living beyond the winter. I just can not stand what has become of America and the circus (without bread) that is our Federal government.
confidence is my word choice, not faith.
before my industry was gutted (bi-partisan stupidity in Washington DC between 1978-2001, I published an economic forecast twice a year.
The jobs are gone. Manufacturing was gutted 1978-2001, and 3/4 of the jobs created 2001-2007 were in the housing bubble, and those jobs are now gone.
The Dems won back Congress 2006-8 because voters thought they were getting the fiscally responsible party of Clinton. Wrong. The GOP won the House back because
well, what is the point. I have no intention of living beyond the winter. I just can not stand what has become of America and the circus (without bread) that is our Federal government.
Yup, it's a three-ringer K2K. Enjoy the summer while it's still here.
Cutting spending in a liquidity crisis won't create jobs, but if it's spending on future welfare benefits it won't kill jobs either. Tax cuts and spending borrowed money are both Keynesian stimulus. Neither are likely to move the jobless numbers much in the near future.
Yup, it's a three-ringer K2K. Enjoy the summer while it's still here.
Cutting spending in a liquidity crisis won't create jobs, but if it's spending on future welfare benefits it won't kill jobs either. Tax cuts and spending borrowed money are both Keynesian stimulus. Neither are likely to move the jobless numbers much in the near future.
@drofnats: Actually, Sophia has something of a point. Companies need faith that people will buy the things they produce. People need faith that they can buy things today without being out of a job and bankrupt tomorrow. Investors need faith that they can invest in startup companies and growing firms without being wiped out by another financial crisis. Absent that faith, nobody hires, nobody buys, nobody invests, and the economy craters.
The unique power of government--especially one with a sovereign currency--is that unlike the rest of us, it does not need to have faith in order to spend and invest. When companies can't find anyone to buy, the government can buy from them. When people don't h ... view full comment
@drofnats: Actually, Sophia has something of a point. Companies need faith that people will buy the things they produce. People need faith that they can buy things today without being out of a job and bankrupt tomorrow. Investors need faith that they can invest in startup companies and growing firms without being wiped out by another financial crisis. Absent that faith, nobody hires, nobody buys, nobody invests, and the economy craters.
The unique power of government--especially one with a sovereign currency--is that unlike the rest of us, it does not need to have faith in order to spend and invest. When companies can't find anyone to buy, the government can buy from them. When people don't have jobs, the government can hire them. When investors can't find a safe haven, the government can provide it. When our collective faith flags, the government can bolster it. Unfortunately, right now it is doing the opposite.
All this is classic Keynes and Minsky, just phrased more lyrically.
Sad, isn't it? And I almost blame Democrats more than Republicans. The Republicans at least are being true to their (deranged) principles. No one ever expected to get any action on J-O-B-S from the G-O-P. But how to explain Democrats' wholesale rejection of any pretense of seriousness on the ailing real economy? I'm starting to get the feeling that with a few exceptions the Democratic Party is a party of cowards. They have been consistently wrong-footed by Republican aggression and to compound the problem they have bought into polling that shows that the public wants action on the deficit, never mind that the public doesn't know shit from Shinola when it comes to the country's true fis ... view full comment
Sad, isn't it? And I almost blame Democrats more than Republicans. The Republicans at least are being true to their (deranged) principles. No one ever expected to get any action on J-O-B-S from the G-O-P. But how to explain Democrats' wholesale rejection of any pretense of seriousness on the ailing real economy? I'm starting to get the feeling that with a few exceptions the Democratic Party is a party of cowards. They have been consistently wrong-footed by Republican aggression and to compound the problem they have bought into polling that shows that the public wants action on the deficit, never mind that the public doesn't know shit from Shinola when it comes to the country's true fiscal/economic position. People want action on the deficit because they have been persuaded that the deficit is the root cause of job loss, and rather than seek to correct this dangerous misunderstanding Democrats, most notably the president, have sought to reinforce it.
The Democratic Party motto should be "If you can't beat 'em, join 'em." Sad.
Borrowing is not a fiscal stimulus. Government spending is a fiscal stimulus. Both borrowing and taxing remove money from the economy. Spending adds money to the economy. The only relevance of borrowing to obtain (destroy) money rather than taxing to do it is whether the money comes from those more rather than less likely to spend. If it comes from those less likely to spend it then the government spending represents a net increase in demand. If it comes from those likely to spend it (as with regressive taxation) then the government spending is not a net increase in spending/demand.
Borrowing, almost by definition, takes the money from those less likely to spend it and hence has some ad ... view full comment
Borrowing is not a fiscal stimulus. Government spending is a fiscal stimulus. Both borrowing and taxing remove money from the economy. Spending adds money to the economy. The only relevance of borrowing to obtain (destroy) money rather than taxing to do it is whether the money comes from those more rather than less likely to spend. If it comes from those less likely to spend it then the government spending represents a net increase in demand. If it comes from those likely to spend it (as with regressive taxation) then the government spending is not a net increase in spending/demand.
Borrowing, almost by definition, takes the money from those less likely to spend it and hence has some advantages over taxation in a recession. But high-end tax increases would have pretty much the same impact without the adverse deficit consequences. You tax the money from the wealthiest who aren't going to spend it anyway and you spend it for them. THAT is a Keynesian stimulus.
Even better is increasing government spending by printing money, that is, by monetizing a lot of the debt that is created (buying it back for newly created money). Then you have the stimulus of spending without the contractionary consequences of taxing or borrowing. This is the combination of Keynesian fiscal stimulus with a Keynesian monetary policy, and both are needed to get out of a deep recession in without having to wait for the "long-term."
Extending unemployment benefits or the payroll tax cut will not create jobs. It may help people keep up with rising food prices and keep a roof over their heads. If they have anything leftover they will probably put it into savings because they are afraid that their future social security will be cut. If they have anything left after that they will probably buy something made in China. Increasing demand will only create jobs for farm workers and people in China.
What we need to do is put people to work directly rebuilding the damage caused by the tornedoes and floods. The weather may be worse next year. Also if we are going to save money by bringing home the soldiers from Afghanistan an ... view full comment
Extending unemployment benefits or the payroll tax cut will not create jobs. It may help people keep up with rising food prices and keep a roof over their heads. If they have anything leftover they will probably put it into savings because they are afraid that their future social security will be cut. If they have anything left after that they will probably buy something made in China. Increasing demand will only create jobs for farm workers and people in China.
What we need to do is put people to work directly rebuilding the damage caused by the tornedoes and floods. The weather may be worse next year. Also if we are going to save money by bringing home the soldiers from Afghanistan and Iraq we will need to put them to work. Asking people to risk their lives and then bringing them home to unemployment is unconscionable.
I saw a few of the new Republican congressmen of TV the other night. They were positively giddy with their new-found power. I wonder if they will still be smiling on Monday after the markets open? Absent a miracle, they will drop into the basement.
I saw a few of the new Republican congressmen of TV the other night. They were positively giddy with their new-found power. I wonder if they will still be smiling on Monday after the markets open? Absent a miracle, they will drop into the basement.
Until the housing crisis abates, GDP will sputter.
I wonder how many Americans are not spending more because, like me, they do not want anything Made in China.
The Dems have a real leadership deficit. They have been caving to the Norquistians who are almost seeing their Starve the Beast victory.
Until the housing crisis abates, GDP will sputter.
I wonder how many Americans are not spending more because, like me, they do not want anything Made in China.
The Dems have a real leadership deficit. They have been caving to the Norquistians who are almost seeing their Starve the Beast victory.
Roi's 101 makes sense but I'm not sure how higher food and energy bills from more monetizing is good for the working and especially underclass who spend a much higher proportion of their income on those basics.
First stop should be to create new higher upper tax bands, two, at least and some kind of debt forgiveness - a people's TARP! - along the lines Stiglitz proposed. Problem solved.
Roi's 101 makes sense but I'm not sure how higher food and energy bills from more monetizing is good for the working and especially underclass who spend a much higher proportion of their income on those basics.
First stop should be to create new higher upper tax bands, two, at least and some kind of debt forgiveness - a people's TARP! - along the lines Stiglitz proposed. Problem solved.
Modest inflation encourages people to spend, as money is a wasting asset, and deflates the value and cost of debt. By printing money rather than taxing or borrowing, you also do not explicitly take away anyone's purchasing power and therefore do not inhibit their spending as an offset to the government spending financed with created money. The regressive effects can be offset by making taxes more progressive, and if capacity tightens up, wages will rise to cover the inflation. Overall, inflation tends to favor current workers over asset holders. By shifting value from asset holders to workers, effective demand increases.
That's how it helps.
Modest inflation encourages people to spend, as money is a wasting asset, and deflates the value and cost of debt. By printing money rather than taxing or borrowing, you also do not explicitly take away anyone's purchasing power and therefore do not inhibit their spending as an offset to the government spending financed with created money. The regressive effects can be offset by making taxes more progressive, and if capacity tightens up, wages will rise to cover the inflation. Overall, inflation tends to favor current workers over asset holders. By shifting value from asset holders to workers, effective demand increases.
That's how it helps.