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Thursday, September 23, 2010

ECONOMY PATIENT'S SLOW RECOVERY NOT A CALL FOR THE GOP MEDICINE THAT NEARLY KILLED IT

SOBERING ECONOMIC FACTS FROM NBER

The downturn officially ended, and the recovery officially began, in June 2009, according to an announcement Monday by the official arbiter of economic turning points, NBER's Business Cycle Committee. Since that point, total output — the amount of goods and services produced by the United States — has increased, as have many other measures of economic activity.

From December 2007 to June 2009, the American economy lost more than 5 percent of its nonfarm payroll jobs, the largest decline since World War II. And through December 2009, the month that employment hit bottom, the nation had lost more than 6 percent of its jobs.

But nonfarm payrolls are still down 329,000 from their level at the recession’s official end 15 months ago, and the slow growth in recent months means that the unemployed still have a long slog ahead.

The declaration of the recession’s end in June, 2009 confirms what many suspected: The 2007-9 recession was not only the longest post-World War II recession, but also the deepest, in terms of both job losses and at least one measure of output declines.

All three of these most recent recoveries have been known as jobless recoveries, as employment growth has significantly lagged output growth. In this recovery, the job market bottomed six months after economic output bottomed. That is still not nearly as much of a lag as experienced after the 2001 recession, when it took the job market 19 months to turn around after output improved.

Any future contraction would be a separate and distinct recession, and one that the Obama administration could not claim to have inherited. While economists generally say such a double-dip recession seems unlikely, new monthly estimates of gross domestic product, released by two committee members, show that output shrank in May and June

The unemployment rate, which comes from a different survey, peaked last October at 10.1 percent. The postwar high was in 1982, at 10.8 percent. But the composition of the work force was very different in the 1980s — it was younger, and younger people tend to have higher unemployment rates — and so if adjusted for age, unemployment this time around actually looks much worse.

Many forecasters estimate that output needs to grow over the long run by about 2.5 percent to keep the unemployment rate, now at 9.6 percent, constant. The economy grew at an annual rate of just 1.6 percent in the second quarter of this year, and private forecasts indicate growth will not be much better in the third quarter.

CLEAR NEED FOR A U.S. ECONOMIC POLICY SHIFT TO FISCAL POLICY

The economy patient is clearly ill, but off its deathbed thanks to Obama’s stimulus. Turning the patient over to the GOP which nearly killed it is an irrational prospect. Their misguided focus on budget austerity is counter to what is needed for the patient to recover, and, that is a heavy dose of fiscal policy that can directly create jobs. That is because the economy is not creating sufficient total effective demand in the absence of fiscal stimulus. Moreover, the teaspoon fiscal prescription by Obama of $50 Bil is not going to provide a cure. Nor, is it going to help the Democrats in the mid-term elections. Driving unemployment down to under 8% by creating 800,000 jobs requires GDP growth of at least 3% and that requires around a $300 bil. dose of fiscal stimulus. With that kind of serious job creation, the Democrats won’t need to worry over budget austerity, because the middle class and below voters will have forgotten about it in the euphoria of returning to work and breaking the fall in their real incomes. Obama contrary to his seeming timidness has nothing to lose by requesting $300 bil. because the GOP will be unanimously against anything Obama wants to do to help the country in favor of increasing their election prospects by misleading the voters into voting against their own interests, a bad habit voters have developed during the past 10 years, one that is dragging the country down rapidly. One can look beyond the high unemployment, to the widening income disparity, and the rising percent of the U.S. households falling below the poverty level. While blaming Republican policies for digging the deep hole the economy is in, former President Clinton said the Democrats needed to plead with voters for more time to turn things around.“I think we ought to say, ‘Look, don’t go back to the shovel brigade — give us two more years; if you don’t feel better you can throw us all out.’ ”

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