Geithner, Bernanke and Summers keep telling us that we are in a recovery. Are they lying? Yes and no. Easy street never had a recession, as they are the beneficiaries of the Republicans’ No Millionaire Left Behind policy. Wall street is recovering, thanks to Bernanke’s protect the uber-rich. Main Street has to sit in the back of the bus. And Tin Pan Alley is reeling, as collapsing state budgets weaken the safety net. Paul Krugman, makes some excellent points, but ignores the keys to solving the crisis.
What will Ben Bernanke, the Fed chairman, say in his big speech Friday in Jackson Hole, Wyo.? Will he hint at new steps to boost the economy? Stay tuned.
But we can safely predict what he and other officials will say about where we are right now: that the economy is continuing to recover, albeit more slowly than they would like. Unfortunately, that’s not true: this isn’t a recovery, in any sense that matters. And policy makers should be doing everything they can to change that fact.
The small sliver of truth in claims of continuing recovery is the fact that G.D.P. is still rising: we’re not in a classic recession, in which everything goes down. But so what?
The important question is whether growth is fast enough to bring down sky-high unemployment. We need about 2.5 percent growth just to keep unemployment from rising, and much faster growth to bring it significantly down. Yet growth is currently running somewhere between 1 and 2 percent, with a good chance that it will slow even further in the months ahead. Will the economy actually enter a double dip, with G.D.P. shrinking? Who cares? If unemployment rises for the rest of this year, which seems likely, it won’t matter whether the G.D.P. numbers are slightly positive or slightly negative.
All of this is obvious. Yet policy makers are in denial.
After its last monetary policy meeting, the Fed released a statement declaring that it “anticipates a gradual return to higher levels of resource utilization” — Fedspeak for falling unemployment. Nothing in the data supports that kind of optimism. Meanwhile, Tim Geithner, the Treasury secretary, says that “we’re on the road to recovery.” No, we aren’t.
Why are people who know better sugar-coating economic reality? The answer, I’m sorry to say, is that it’s all about evading responsibility.
In the case of the Fed, admitting that the economy isn’t recovering would put the institution under pressure to do more. And so far, at least, the Fed seems more afraid of the possible loss of face if it tries to help the economy and fails than it is of the costs to the American people if it does nothing, and settles for a recovery that isn’t.
In the case of the Obama administration, officials seem loath to admit that the original stimulus was too small. True, it was enough to limit the depth of the slump — a recent analysis by the Congressional Budget Office says unemployment would probably be well into double digits now without the stimulus — but it wasn’t big enough to bring unemployment down significantly.
Now, it’s arguable that even in early 2009, when President Obama was at the peak of his popularity, he couldn’t have gotten a bigger plan through the Senate. And he certainly couldn’t pass a supplemental stimulus now. So officials could, with considerable justification, place the onus for the non-recovery on Republican obstructionism. But they’ve chosen, instead, to draw smiley faces on a grim picture, convincing nobody. And the likely result in November — big gains for the obstructionists — will paralyze policy for years to come.
So what should officials be doing, aside from telling the truth about the economy?
The Fed has a number of options. It can buy more long-term and private debt; it can push down long-term interest rates by announcing its intention to keep short-term rates low; it can raise its medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.
The administration has less freedom of action, since it can’t get legislation past the Republican blockade. But it still has options. It can revamp its deeply unsuccessful attempt to aid troubled homeowners. It can use Fannie Mae and Freddie Mac, the government-sponsored lenders, to engineer mortgage refinancing that puts money in the hands of American families — yes, Republicans will howl, but they’re doing that anyway. It can finally get serious about confronting China over its currency manipulation: how many times do the Chinese have to promise to change their policies, then renege, before the administration decides that it’s time to act?… [emphasis added]
Inserted from <NY Times>
Krugman’s ideas should be implemented, because everything he said is true. However, what he left unsaid is more important.
For starters, Obama should fire Geithner, Bernanke, and Summers. No, I’m not going Boehner bonkers. I have been calling for their termination since the day after their appointments, because I knew what they would do. They should replaced with progressives. That would turn Boehner a brighter shade of orange.
The Senate Dems should finally grow a pair and change the rules on the first day of the next session in January. On that day, it requires a simple majority. They should end the filibuster and one person holds.
Congress must reinstate Glass-Steagall to reinstate the separation between commercial and investment banks. What incentive do commercial banks have to lend when speculating yields faster profit?
Easy Street has had it far too easy far too long. The Republicans’ No Millionaire Left Behind plan has skewed the distribution of wealth to such an extreme that the bottom 40% of Americans own only 0.2% (that’s 1/5 of 1%) of the wealth. Let Republicans scream about redistribution of wealth. It’s a lie. Republicans were redistributing wealth the entire time what was supposed to trickle down gushed up. Democrats must recover part of that wealth for Main Street and Tin Pan Alley with a major tax increase on the top 1%, close the hedge fund managers’ loophole, and end corporate welfare. In the 1950s and 1960s the top marginal tax rate was over 90%. The economy thrives and the rich had plenty left for ostentatious living.
Solve the Social Security issue by removing the income cap.
Stop no-bid government contracts and cost overruns that invite waste, fraud and abuse.
And I could add more.
What would you add?
Most important, we need to keep the party that caused this mess, the party that openly promises to return to the same policies that caused it, out of power.
Every Republican in office is one Republican too many!
24 Responses to “Is It Really a Recovery?”
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I like Krugman, but the world is coming to end every time I read him. He does make some valid points, but he is not entirely right.
If we want employment, I hate to say it, but we need outright corporate welfare. The Government cannot create the spending needed to restart this economy, not without a major war at any rate. If done with some amount of correctness, the gov. can use corporate welfare as leverage to help more people with less money.
I have disagreed about Bernanke for some time. I also think that no one else is going to do any better than how he has been doing. Summers and Geithner are useless, and possibly counter-productive. They need to go. Bernanke really believes in what he is doing is the right thing.
The economy does not suddenly explode when under pressure like it is. It will take some time to dig out of this. There is a lot of leverage out there that needs to be unwound, personal and private. There is not a lot of stimulus that can correct that situation, which is another reason that the previous stimulus failed. Economists starting noticing it under the W stimulus, people were paying debt more than they were spending money. Credit Card debt dropped to a 5 year low this week. It will be at a 50 year low before it is done. That is going to take a really long time. Business cannot expand without spending, and no one is spending.
Things will get worse before they get better. Even if the Stimulus was bigger, it would have had a slightly stronger impact, but the end result would have been the same, there is just too much supply out there, too much real estate, too much inventory, too much everything. People are cynics, they would have paid off more debt and stayed quiet. Savings will continue to increase. This country is going back to 1940’s fiscal policy, at least on a personal level.
Also, I think that something that Krugman has completely wrong is that government spending can save us. No, gov spending can only soften the blow. There is a natural cycle that is occurring here and it needs to be recognized. We grew too big and too fast on air. How much wealth was destroyed in the Dot Bomb? So, where did the money come from for the Real Estate Bomb? If the people have no money, where is the government getting money for the Dot Gov Bomb that is getting built even as we speak? The gov does not need to go on the Deficit Panic, yet. However, there isn’t a whole lot more that it can do, either.
Finally, China. Here is the reality: We want them to buy our debt AND adjust their currency. China is going to tell us to “Go pound sand.”, as well they SHOULD. This is our mess. WE contracted all of our jobs to China with the Government’s blessing. WE gave them preferred nation status (thanks, Bill). WE spent ourselves into oblivion buying their crap. You want China problems to go away? Quit relying on them for every damn thing! We say, “Build our crap. Buy our bonds. Oh, and adjust your money so that it isn’t so weak, even though when you have a GDP below 5% you are in recession, borderline depression.” China is not the issue, they are the distraction, don’t forget it. Every problem we have we can solve and change nothing with China. If we solved our problems, though, things would change on their own with China.
Otis, I agree that this will take time. Even before Obama was nominated I projected that repairing the damage from No Millionaire Left Behind would take up to 50 years. I also agree that we made our own bed with China in that Republicans (and Clinton) turned a blind eye to their trade violations, because they financed our debt. However, that needs to end. It’s true that China can collapse our economy, but not without collapsing their own in the process. We’re China’s TBTF corporation.
The vicious cycle:
people unemployed –> people not spending –> businesses that create real wealth not selling –> those businesses not hiring –> people unemployed
To begin a real recovery we need to prime the pump with massive investment in infrastructure, green energy, tax incentives for job creation, and R&D. That’s where government comes in.
TomCat,
You are SO correct in asserting that the current economic team must GO and be replaced by progressives! They are merely Wall Street hacks, and that’s why Main Street is all shot to hell. We DEFINITELY need a MUCH bigger stimulus – a NEW New Deal of sorts whereby infrastructure can be massively rebuilt and unemployment can be slashed. Such tremendous activity won’t have a mere ripple effect throughout the entire economy, but rather a QUAKE effect that will explode demand in all fields. The half-assed measures employed so far have yielded only quarter-ass results. The status quo cannot stand, with big banks and big business sitting on its maney and contributing virtually nothing for growth.
This country did not become a major economic power by sitting still or by being cautious. There has been absolutely NO bold new leadership coming from the private sector. THEY have failed us, not the government. So it is time for the government to step in and force innovative new action for growth. The only problem there, though, is the ultra-conservative Republicans and wishy-washy blue dog Dems. both of whom are afraid to take up the mantle of decisive leadership.
We are in a horrible stalemate, and it is destroying us. Income MUST be redistributed and action MUST be undertaken – NOW!
Jack, I agree. Note my above reply to Otis.
You are spot on, TomCat. Will it happen? Probably not. The Democrats are almost as far under the covers as the republicans. It is a big bed and corporate America is a big blanket.
Otis – I don’t see how corporate welfare is a big booster to employment. Putting money into the hands of the consumer directly is the biggest stimulus of demand. And it is demand that creates jobs. Money in the hands of corporations without an increase in demand does not create jobs. Some jobs may trickle down, but we have already seen how “trickle down” works. It trickles, when what we really need is a waterfall.
Jerry, I agree. The Democratic swamped must be drained, but to make it safe to do so we must exterminate (politically) the Republican alligators. Nothing trickles down. It gushes up.
The destruction of the middle class is worst part of the Republiocans nightmare phiscal policies. Without a strong middle class we will never get out of this mess.
We’re moving out of the first world, economically, Tom. Standards of living here already lag behind Japan and much of Europe.
I have made the point several times at my blog that rebuilding American national infrastructure is not only desperately needed but a huge gorilla and elephant being ignored by both parties. I agree with Jack, the private sector has done nothing to help the country but is seeing huge profits.
Going with what Jack further said and what Jerry mentioned the status quo must not stand but with both parties controlled by the corporations nothing is going to happen until the middle class feels threaten. The only problem is that most of them are caught up in Lohan’s behavior and worrying about the Muslim boogeymen sneaking under their bed.
Beach, I agree wuth everything you said.
Let’s give Liz Warren her oversight job. Mostly let’s get out of Afghanistan! End the war on terror. If we don’t occupy Muslm lands they lose their justification for jihad. Just think, we could easily be more secure if we end the war and cut our military budget in half. From that half’s funding we can develop alternative energy, rebuild infrastructure and cut the debt. That would be way too practical, and not enough corporatism for the Greed Machine.
Dave, I agree. However, as long as we’re addicted to oil, we need to be able to protect our supply from those nations who would follow our example and dominate the resource by force.
If supply side jesus wanted you to be prosperous he would have made you be born of a rich oil and natural gas magnate! And if you were wealthy you’d be healthy! But since you aren’t it’s the will of god that you’re poor and getting kicked out of your home. Q.E.D.
Gene, have you been drinking tea again? 😉
I’m going to disagree with my husband (Otis – you’ll have to forgive him, he’s a recovering Republican (he voted for Bush – yes, I’m still trying to forgive him); clearly my work is not done here :)). I agree that a massive infrastructure project needs to happen. Think of all we could do with all those people out of work: rebuild bridges and roads, put windmills in the center of the country, cover the desert in solar panels, upgrade our electrical grid and reduce failures, more green technology, etc. People aren’t happy not working – this is America – we built this country from the ground up in 200 years and became the world’s only superpower. Let’s put so of that American hard work and know-how BACK to work.
Geithner, Bernanke, and Summers need to GO. I say Bernanke too because he’s in bed with the banks and hell bent on protecting them NO MATTER WHAT. He SUCKS and he’s a smug asshole – for that reason alone he should go.
Lisa, I’ll forgive him, but it’s up to you to keep him in line. 😉
You know, there are no unpaved roads in Japan. They have been doing infrastructure building for 10 years to get them out of their recession. Bang up job, guys. Their economy has not moved in, going on, 15 years.
When I say corporate welfare, I mean CONTINGENT corporate welfare. Not this blank check, no strings crap that they pass for ‘fair practices’ currently. We need intelligent, well thought out stuff.
Really, mine is only a suggestion about the corporate welfare. I stand by my point that nothing and no one is going to move this economy and create jobs until the debt is completely unwound. The Government should take on the debt, but only for so long. We have been too deep, too long. You have to remember that part of the reason that Japan has held out as long as it has is because it started out with money in the budget, unlike us.
One thing that will help significantly is if the Dems lose and kill the zombie banks with their lame duck session. It would be catastrophic… for about a week, then the ship would begin to right itself. I will stand by comments I have made many times in stating that would take spine and determination, things not currently found in the Democratic Congress, with rare exception.
Things look like they are going to get worse before they get better, and there is nothing the Republicans can do about it, even if they did have a plan. So, I think that the misplaced angst of the American people will probably give them Congress. This will backfire HORRENDOUSLY on the Republicans. They may be lucky to have a seat when this economy gets through.
Otis, Japan’s situation is not applicable, because their infrastructure spending was corporate welfare. Their infrastructure was in good shape before it began. Ours is crumbling. Also, I listed many things that need doing. Infrastructure spending alone is not enough.
From that 2004 graphic, it looks like Ms Pacman has all but gobbled us up.
Bingo! You hit the nail on the head.
Let them eat cake.
Thanks Marie. 😉
Who picked the boys from wall street? Whatever happened to the buck stops here? A general takes the blame for a loss as well as the win. Did Obama pick them or did they pick Obama?
Part of being in charge is being able to pick the people who best will serve your agenda. Nothing will happen to the wall street wonders. They’ll go down with the ship, the SSObama. Yeah I know oh he’s done this and that. I can come up with a list to, of his failures. I hear oh he had to compromise in order to get things done.
You come to the fight strong, not with a white flag. Let’s place blame where it’s due. I know this is not what anyone here wants to hear. Sorry but If he had any balls he would have gotten Warren in there while on break.
A recess appointment his predecessor would have done in a heart beat.
Tim, at the time Obama picked them, I believe that Washington insiders took advantage of his inexperience and convinced him that they were the only ones who could prevent economic collapse. He needs to recognize and correct his mistake. As for Warren, I would have enjoyed that, but nominating her in the face of Republican opposition, in the runup to November, would be brilliant.