August 4, 2008
Column: Only luck can save America’s economy
The US economy may not be in recession, but this is the nearest thing. In spite of the recent fiscal stimulus, output grew less than 2 per cent at an annual rate in the second quarter, slower than expected. That followed growth of 1 per cent in the first quarter and a contraction (on revised numbers) of 0.2 per cent in the fourth quarter of 2007. A recession is usually defined as two consecutive quarters of shrinking output. It has not happened yet, but it very well might in the next few quarters. Even if it does not, that would be little consolation.
Prospects for the second half of the year are poor. Some of the current boost from the fiscal injection delivered last quarter will keep feeding through, but consumer spending, the hitherto unstoppable engine of US growth, is stalling. The prices of food and petrol, together with still-tightening credit conditions and a housing market that has not yet touched bottom, are weighing it down. Net exports were the main accelerator in the second quarter – without that rise, in fact, output would have fallen, fiscal stimulus or no. But they cannot be relied on in future because growth in Europe and elsewhere is going to be limited by, among other things, policymakers’ worries about inflation.
Most forecasters are expecting a double-dip US slowdown – and the second dip could be a technical recession. Regardless, the labour market is already behaving that way. Unemployment moved up to 5.7 per cent in July, the labour department reported on Friday. Overtime is falling; involuntary part-time working is on the rise. Unemployment will climb above 6 per cent next year. While it may be true that the US has seen much worse, this is no mere “mental recession”.
The remainder of this column can be read here. Please post comments below.
If I recall correctly, Congress passed all of the budgets that Pres. Bush signed, rounding of the edges of the claim that “blame for this neutering of fiscal policy lies: squarely with the Bush administration” a bit. Squarely, maybe, but soley?
Federal Receipts have been way up in the last 7 years, but Congress and the Executive Office have spent right through the increase.
JBP
Posted by: John Powers | August 4th, 2008 at 1:36 pm | Report this commentGreat piece, Clive! I agree completely, and commend you for calling much-needed attention to the false accounting that was built into fiscal policy under the Bush administration. The idiotic “war on terror” certainly has helped to waste untold hundreds of billions of dollars, and to undermine the security of the nation by helping to take away control of financial policy from the US and to put it into the hands of foreign counries and entities.
Posted by: James Canning Seattle WA | August 4th, 2008 at 6:24 pm | Report this commentIn the United States, fiscal policy is in the hands of Congress. It is Congress that approves or not of tax cuts, tax increases, spending cuts and spending increases. It is true that Congress has been in Republican hands for most years since the election in 2000; however, much of the spending increase happened because the VOTERS wanted it. For example, Medicare Part D, the “drug benefit” program of Medicare. Voters believe that money grows on trees, that “somebody else” will pay for it, that money will just fall from the sky. Voters in the United States are just that stupid. They wanted all this spending increase, and they got it. As Milton Friedman said in his famous Playboy Interview in the early 1970s [go and look the interview up], even a fiscally conservative President would have been foolish to oppose what voter longed for. Voters should take responsibility, but of course, such word in unheard of in the United States.
Posted by: Alex | August 4th, 2008 at 7:14 pm | Report this commentSince “we all are America” to varying degrees, reluctantly or otherwise, leaving it to luck is unlikely to be our purpose. All life is problem solving, we have long accepted and while we do not always act accordingly, the present situation certainly concentrates the mind. Jumping out of windows has long gone out of fashion, mind you bringing back the czech version, which is “defenetrace” (pushing someone out of a window(at the Prague castle)) might be a more salutary excercise. If your are in luck there might even be a bail of straw right under it. Clive Crook might be right after all with calling for luck.
Posted by: H. J. Hochheimer, Prague | August 4th, 2008 at 9:50 pm | Report this commentwe are witnessing the decline of a global super power. empires by their nature are self-destructive. they fail to recognize their limitations and the boundries of good sense.the us has over-reached militarily to support a foriegn policy that enriches far too few. the us has financed this over-reach along with overconsumption in the same manner, by leveraging the future cash flows of an economy hyped up on financial derivatives and unsustainable borrowing. we need to de-lever and shrink the bloat. the lemon has been squeezed dry. we can cut rates and print money and bail out every failing business model but in the end we will transform capitalism into a system we can no longer recognize. we create the
Posted by: gym-bob | August 4th, 2008 at 10:09 pm | Report this comment‘too big to fail” monsters that haunt us in the night through poor regulation and moral hazard. “creative destruction” has become some quaint cocktail party topic rather than the essential ingredient of capitalism ,weeding out the less fit. its brutal for some but perpetuates the greater good. our citizens are financially illiterate and conditioned to want more of everything and to charge it all. we are betting that stagnant wages will be the inflationary safety valve that limits the ravages of global inflation. we forget that healthy consumption is the flip side of supply-side voodoo. we have sufferred spineless leaders more concerned with superficial legacies and votes than sound economics. we are selling off the very natural resources that made the us a great power to nations that may not always wish to finance our overconsumption in the future. in its current form the us lacks a self-sufficient, self perpetuating economic system. wall street has become incapable of creating value or real growth and instead creates “profits” through securitization. securitization will prove to be the scourge of the real economy. we create 20 something millionaires who follow the drumbeat of the street, summer in the hamptons and splash about in the money they siphon from the real economy,with no perspective on where the are headed or the ultimate pain the may cause. senior management on the street is all too willing to sacrifice future stability for current false riches.it frightens me to think of the role mentors play in the back rooms of investment banks. too many “leaders” are ex-wall streeters, be they in the fed or treasury, who cannot seperate their duty to county from loyalty to friends. there is an economic vortex that has begun to suck the capital from our financial system at a less than lethal pace. housing, finance, manufacturing and ill-advised military adventures are combining to squander the lifeblood of what was the most powerful nation the globe has seen. the vortex can gain in intensity and reach a point where even the fed and treasury bailouts of financial giants may not be sufficient to stem our creditors concerns. if we think in grand terms it is concievable that the loss of confidence and new york financial district politics that sunk bear stearns could be the model for a run on the us financial system, just substitute asian and middle eastern creditors for the financiers on the street . there are likely equal parts concern for protecting the housing market and protecting the value of the dollar in the rescue of fannie and freddie. exotic alt-a’s and prime loans are smoldering, ready to burst into flames. who among us wouldn’t trade the short term profits of mortgage lenders and investment bankers from 2006 and 2007 for some current financial sanity.
Please bring back the Mary Poppins School of Economics and get rid of the fraudster “Al Leverage”
Posted by: joehock | August 5th, 2008 at 7:36 am | Report this commentTo the Unitary Executive ….
Posted by: J Llewellyn | August 5th, 2008 at 11:51 am | Report this commentOnly new generation of Leaders can save America’s economy!
Posted by: Viktor O. Ledenyov | August 5th, 2008 at 12:53 pm | Report this commentThe comments that invariably accompany articles like this (”decline of a superpower,” blah blah) always serve to underscore the ingrained tendency toward hyperbole and exaggeration that accompanies the discussion of economics (and all that stems from), the unmitigated ignorance of most commenters on economics, and the willful capitalization on all of the above by ‘journalists’ such as Mr. Clive.
As a student of economics (though with only a lowly Master’s), I find this sort of thing rather sad, and I honestly feel sorry for the gullible types who live in blindered fear, consuming the words of blogs such as this.
Posted by: Michael | August 5th, 2008 at 2:24 pm | Report this commentAhh- ignorance is bliss. and an underutilized education provides the mind numbing comfort of a swaddling blaket for denial.
Posted by: gym-bob | August 5th, 2008 at 5:21 pm | Report this commentone shouldn’t minimize the value of a post graduate degree. the instructors most likely did their jobs, assuming they included the proper blend of blah blah blah with the rest of the curriculum.
love to stay and chat but i have an investment company to run. even after twenty years it takes work to uncover new ideas. it would be easier to accept the dogma of the past 20 years as more than the drivel it is but then thats not what the clients pay for.
i will make one concession-blogging is a bore. now i recall why i gave it up for gardening. flowers grow, minds rarely do.
gullibly yours,g-b
Many have pointed to certain fleeting difficulties in the market place as the herald of some great collapse. It has been said repeatedly throughout the history of America and the United States that it is always at the precipice when the odd disturbance arises.
Yet the United States survives and grows at an accelerated rate despite the predictions of disaster.
At this time, there is no perilous threat in America’s backyard. There is no financial difficulty that has not been faced before. The nation generally grows ever wealthier and prosperous while others stagnate or recede.
In several years, with troubles having evaporated, the US will resume its march.
By the way, are you in the gold business, Gym-Bob?
Posted by: Gary Marshall | August 6th, 2008 at 6:14 am | Report this commentOh I almost forgot.
Gym-Bob speaks of labouring at uncovering new ideas. Well, why not let this aged and childish specter of disaster just fade away, maybe by leaving the lights on while resting in your swaddling blanket of denial.
Regards,
Posted by: Gary Marshall | August 6th, 2008 at 6:21 am | Report this commentGary Marshall
Oh I almost forgot.
What kind of flowers are you planting and harvesting!
Posted by: Gary Marshall | August 6th, 2008 at 6:28 am | Report this commentvic must be happy, he has company in the dark cave of denial. i suppose its better to whistle past the graveyard in harmony.
Posted by: gym-bob | August 7th, 2008 at 11:24 pm | Report this commenteconomists like gordon, kondretief, schumpeter, minsky and even smith would find these troubling times for america. but atleast we have a band of merry men to dispell economic theory and refute the severe financial and geo-political risks facing the country.
too many are bound by ignorance, avarice and arrogance. it reminds me of the joke about w. being born on third base and thinking he’d hit a triple.
its hard to imagine that the system that has provided jobs and security for most people and their families and great wealth for a few others, for over two centuries, could be so corrupt and so poorly managed that it could falter. many americans can only view themselves and our country as the chosen, above the fray and the laws of nature, markets and economics. its easier to want more of the same than to see the need for drastic change. some will face the challenge and others will bury their heads. history will be harsh for w. and greenspan and the recent captains of finance.why do so many need to gain perspective and understanding only through painful experience? my hope is that people will read the works of peter bernstein and fareed zakaria and gain some perspective on what’s coming. or muolo and padilla (chain of blame)to figure out what just happened.
by the way gary, roses. i love roses.
these recent exchanges only serve to reinforce my opinion that blogging is a waste of time. this time i will stay away for good.
Hello Gym-Bob,
I think your argument could be summarized as, “The US has suffered before and overcome, but it’s really gonna get it this time.”
I think every great civilization has heard this throughout its history. It may happen to the US this time, but I really doubt it.
Well, back to the Platonian cave for more denial.
Regards,
Gary Marshall
And you are in the investment business? Just exactly what company’s paper are you pushing?
With the recent specimens, I do understand why you might consider blogging a waste of time.
Posted by: Gary Marshall | August 8th, 2008 at 3:34 am | Report this comment