JONATHAN CHAIT APRIL 10, 2010
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Businessweek has a good rundown of the growing strength of the economy:
[T]he judgment of the financial indexes has turned resoundingly positive. The Standard & Poor's 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."
Little more than a year ago, financial markets were in turmoil, major auto companies were on the verge of collapse and economists such as Paul Krugman were worried about the U.S. slumbering through a Japan-like Lost Decade. While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6% annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3% growth this year, significantly higher than the 2.1 % estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office. The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtable's measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs—more than it had during any month in the past three years. "There is more business confidence out there," says Boeing (BA) CEO Jim McNerney. "This Administration deserves significant credit."
I think the interesting question right now is not whether the economy is due for strong growth, but whether and when that growth will create rising living standards. The recovery from the 1991 recession took years before it began producing wage gains. The recovery from the 2001 recession basically never produced real wage gains -- essentially all the gains went into corporate profits and gains for the very rich. Moreover, there's very little consensus as to why that happened. So we have no idea to what extent growth and higher productivity will create conditions that people have any reason to recognize as real growth.
8 comments
8.2 percent unemployment in October 2010 = 20+ Democratic seat loss in House. 9.7 percent unemployment in October 2010 = 50+ Democratic seat loss in House.
- timteeter
April 10, 2010 at 4:04pm
I fail to see how any economy can be considered "strong" when unemployment is high AND living standards are static or falling. The economy is is a mechanism, a human creation to improve the human condition; we are not here to serve some creation of the human mind. Somewhere nearly all economists and the business/financial press forgot WHAT the economy is supposed to do and always use the wrong yardstick. If people aren't better off as a whole, then it's FAIL for the economy and it's lousy. I could care less if the S&P 500 is up or corporate profits are high if people are out of jobs and good jobs flee the country. At some point there will be a scary, miserable reckoning if it keeps up and it will not be pretty.
- tnmats
April 10, 2010 at 4:28pm
I make this comment as I watch the Masters. But that's not my comment. But I do reside in Georgia, on the coast. And based on the number of visitors this past week, spring break for Atlanta's schools, the economy is definitely on the mend, at least in Atlanta (last year was great, hardly any visitors). Now my comment, which responds to Chait's statement that, as to why the past recovery saw little if any wage gains, there is "very little consensus as to why that happened". For over 20 years US tax policy has penalized firms for hiring or increasing wages by imposing a $2.5 trillion surtax on wages. Let me repeat: $2.5 trillion. On wages. Would you hire someone or increase wages if wages are subject to a surtax. What surtax? Not surprising that TNR readers aren't familiar with the surtax, Chait isn't even aware of it. Anybody know?
- rayward
April 10, 2010 at 5:17pm
Rayward, are you referring to FUTA (Federal Unemployment Tax Act)? Because that was passed in 1939 to fund unemployment insurance, not just over twenty years ago. BTW, I'm in Savannah. How's Tiger doing?
- timteeter
April 10, 2010 at 5:32pm
tim, tnmats, I think you are missing some fundamentals here that people don't take into consideration. Women accounted for 60 percent of total labor force growth between 1982 and 1992 so that the unemployment under Reagan was much more severe since fewer women were in the work force. Now 2 income couples families are better able to weather economic downturns. The civilian labor force participation rate (64.9 percent) continued to edge up in March. The last time it was at this figure was 01-01-1986, the highest it has even been was 04-01-2000 at 67.3 Yes, I know stagnating wages have lowered standards but due to increased efficiency and technologies our lifestyles have not. A handheld cell phone cost $2,000 in 1986, personal computers were non-existent, etc. Cars are far more efficient to run, appliances are more efficient, etc. Frankly, I think our metric of living standards is off. I am not saying things are not bad, I just don't think our bad is the same as the bad during the Reagan recession. Essentially, what I am saying is employment is still fairly high, and living standards are improving in ways not reflected in our paychecks. Now how this plays out in Nov. I don't know, I still hold to a 24 seat Dem. house loss and 5 in the Senate. Bush was Carter redux in that he kicked the hell out of peoples expectations for a better life so I think people are a bit more realistic.
- blackton
April 10, 2010 at 5:41pm
tnmats, I think the hope is that unemployement will turn around in the wake of this other good news -- though more slowly, which is to be expected. Chait is talking about wage gains/standard of living. I think, for the moment, we'd all like to see a decisive turn-around on the employment front, and that would generate optimism among the population as a whole (and not just among business elites) who would be happy right now with either (a) a job, or (b) a stronger sense that their job was secure.
- jhildner
April 10, 2010 at 9:28pm
"So we have no idea to what extent growth and higher productivity will create conditions that people have any reason to recognize as real growth." At this point I'll just settle for state budgets being solvent. Although as a laid-off schoolteacher I'm somewhat biased!
- elirector
April 10, 2010 at 9:53pm
We have some severe structural issues in the US economy that the recession just brought to a head. Those problems, regarding distribution, demand, labor re-skilling, international trade imbalance, and a lot of other things. None of them will be resolved by the end of the recession. Period. But perhaps, with the problems no longer papered over by a false boom created out of a Ponzi scheme in mortgage-backed paper, we will finally start to address the structural problems that began in the early 80s with the Reagan administration.
- roidubouloi
April 11, 2010 at 3:32pm