Sunday, August 14, 2011

Our Economic Malaise

 Economic growth seems to be stagnating. The universal cacophony is a call for stimulus to get the economy growing again.  The Washington Post recently ran a good article by Bill Gross: "America’s debt is not its biggest problem". Well, it was a good article until it put forth, near the end, the tired mantra of: "The president and Congress must recognize that an AA-plus country, to remain AA-plus, must focus on growth, not debt reduction, in the short term."

Up until that point, what made the article good? Well it pointed out that there is a structural change in the economy by pointing out that we have an "Aging demographics, where boomers everywhere spend less,...", that "Globalization, where 2 billion new competitive workers from Asia and elsewhere take jobs and paychecks from complacent and ill-trained 40-somethings in developed markets.", and that "Technological innovation, where machines and robots displace human labor, resulting in corporate profits but declining wages".

Regretfully, the article did not get into (blame) Bush for over-stimulating the economy before the election of Obama.  The supply side economic policies of the Republican starting with Reagan promoted the production and consumption of goods before the wealth necessary to support them was created. Like a credit card, one can enjoy unwarranted spending until some credit limit is reached.  Once reach the spending has to stop, as with a drug addict, withdrawal is tough.  Our political leaders fail to comprehend that we can not spend ourselves into economic growth when the consumer demand does not exist.

This past week, on Fox News, the pundits recognized that home mortgages interest rates were at record lows.  That Obama implemented programs to make it easier for some to buy houses. Yet foreclosures continue and home prices continue to fall. The failure of housing to recover was caused to over-supply, inflated values, and now a lack of demand resulting from the economic downturn.  Our elected official stubbornly remain deaf to the concept that they will be unable to turn the economy around.

A better ending for Mr. Gross's article would have been that we need to recognize that the old growth engine is not there anymore based on the factors he cited, that we have to adjust to lower consumer demand, and the fact that the Republicans overstimulated the economy.  We are now experiencing withdrawal.

No comments: