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Over the next seven months there will be endless reports about the direction of the economy – some designed to elucidate; many designed to confuse. Here’s a primer:
The short term business cycle.
Specific metrics to consider include:
1. Unemployment – We lost 8.3 million jobs in 2008-2009 and have gained about 3 million in 2010-2011.Unemployment has slowly declined from a high of 9.7% to 8.3% (15.2% “all in”); economists project job creation for 2012 will slightly exceed the 150,000 monthly increase needed to cover population growth. Few think it will get much below the 8% ceiling promised with the Stimulus Plan.
2. Housing – prices are projected to decline 3 to 5% in 2012, on top of the 40% decline since their 2007 peak. Home ownership crested at almost 70 %, has returned to its pre-Clinton mid-60’s, and promises to go lower as foreclosures continue. Government-owned Fannie and Freddie have cost taxpayers some $135 billion with losses projected to nearly double. This won’t be much better by November.
3. GDP – since recovery began in mid 2009 GDP growth has averaged about 2.5%, slightly below the historic 3.25% average and well below the usual rate following recessions.
4. Inflation – gas prices are such an easy target. They may decline a bit if Iran settles down, but with the declining dollar and global economic growth they’ll be twice what they were when Obama took office.
The Obama plan – continue deficit spending until after the election; blame Bush, Europe, or whoever; talk about something else. The Republican plan – try not to appear to be rooting for a downturn. Mitt Romney notes that President Obama taking credit for the business cycle is like a rooster taking credit for the sunrise.
Long term patterns.
This is where the economic discussion should really take place. Since Farheed Zakharia wrote “The Post-American World” in 2009, he and Thomas Friedman have been writing best sellers about the decline of the United States. Many pile on with the inevitable ascendancy of China’s government-run economy, the hollowing-out of America’s manufacturing economy, and the fatal flaw of unequal income distribution. Others stare into the mirror of Europe and see the administration’s Greek-like debt.
For serious discussion it is useful to get a few shibboleths out of the way:
1. The United States remains the world’s largest manufacturer with a 20% global share – about 45% more than China. We enjoy unquestioned leadership in the medical and technological fields which will dominate the 21st century. The structural employment problem is that we have automated agriculture, manufacturing, and now the office and need to figure out what to do with the people.
2. The United States is at the top among the industrialized nations in spending on K-12 education. Our universities lead the world in broad public education, graduate schools, and research. We still dominate the ranks of Nobel Scholars. Money isn’t the problem.
3. Exports (some agricultural, but mostly industrial) represent about 12% of GDP and are growing (helped by a dollar which has declined by one third in the past ten years. Unfortunately, imports represent 15%, resulting in an unsustainable annual trade deficit of $550 billion.
Economically, 2012 will be what it will be, but beyond that there is a stark difference between the Republicans and President Obama: will we seize the very real opportunity for North American energy independence?; will we reform Social Security, Medicare, and Medicaid which threaten to bankrupt the country?; will we get close to sustainable balanced budgets?; will we reform federal, state, and local public employee pensions which threaten to squeeze out all other spending? can we become more competitive in a world with lower-priced labor?
If the Republicans are smart, the election will be about whether a more intrusive government or a freer citizenry can best address the long term questions, and not so much about the spin on the latest Bureau of Labor Statistics report.
Here’s some recent Senate testimony in which the cabinet secretary responsible for implementing Obamacare, Kathleen Sibelius, claims not to understand the cost of the program, the increase in consumer costs, or the 1700 waivers that her department has granted to companies that would have cancelled their employee insurance.
bill bowen – 3/9/12