 |
| 
DLW
Registered Member
Date Joined Apr 2003
Total Posts : 2457
| Posted 10/30/2003 6:05 PM (GMT -6) |   | By Paul Krugman
in the NYTIMES.
The Commerce Department announces very good growth during the previous quarter. Many observers declare the economy's troubles over. And the administration's supporters claim that the economy's turnaround validates its policies.
That's what happened 18 months ago, when a preliminary estimate put first-quarter 2002 growth at 5.8 percent. That was later revised down to 5.0. More important, growth in the next quarter slumped to 1.3 percent, and we now know that the economy wasn't really on the mend: after that brief spurt, the nation proceeded to lose another 600,000 jobs.
The same story unfolded in the third quarter of 2002, when growth rose to 4 percent, and the economy actually gained 200,000 jobs. But growth slipped back down to 1.4 percent, and job losses resumed.
My purpose is not to denigrate the impressive estimated 7.2 percent growth rate for the third quarter of 2003. It is, rather, to stress the obvious: we've had our hopes dashed in the past, and it remains to be seen whether this is just another one-hit wonder.
The weakness of that spurt 18 months ago was obvious to those who bothered to look at it closely. Half the growth came simply because businesses, having drawn down their inventories in the previous quarter, had to ramp up production even though demand was growing slowly. This time around growth has a much better foundation: final demand — demand excluding changes in inventories — actually grew even faster than G.D.P. So it's unlikely that growth will drop off as sharply as it did back then.
But — you knew there would be a but — there are still some reasons to wonder whether the economy has really turned the corner.
First, while there was a significant pickup in business investment, the bulk of last quarter's growth came from a huge surge in consumer spending, with a further boost from housing. These components of spending stayed strong even when the economy was weak, so there shouldn't have been any pent-up demand. Yet housing grew at a 20 percent rate, while spending on consumer durables (that's stuff like cars and TV sets) — which last year grew three times as fast as the economy — rose at an incredible 27 percent rate last quarter.
This can't go on — in the long run, consumer spending can't outpace the growth in consumer income. Stephen Roach of Morgan Stanley has suggested, plausibly, that much of last quarter's consumer splurge was "borrowed" from the future: consumers took advantage of low-interest financing, cash from home refinancing and tax rebate checks to accelerate purchases they would otherwise have made later. If he's right, we'll see below-normal purchases and slower growth in the months ahead.
The big question, of course, is jobs. Despite all that growth in the third quarter, the number of jobs actually fell. And new claims for unemployment insurance, a leading indicator for the job market, still show no sign of a hiring boom. (By the way, for the last month there's been a peculiar pattern: each week, headlines declare that new claims fell from the previous week; a week later, the past week's number is revised upward, and the apparent decline disappears.)
And unless we start to see serious job growth — by which I mean increases in payroll employment of more than 200,000 a month — consumer spending will eventually slide, and bring growth down with it.
Still, it's possible that we really have reached a turning point. If so, does it validate the Bush economic program? Well, no.
Stimulating the economy in the short run is supposed to be easy, as long as you don't worry about how much debt you run up in the process. As William Gale of the Brookings Institution puts it, "Almost any tax cut or spending increase would succeed in boosting a sluggish economy if the Federal Reserve Board follows an accommodative monetary policy. . . . The key question is, therefore, not whether the proposals provide any short-term stimulus, but whether they are the most effective way to provide stimulus." Mr. Gale doesn't think the Bush tax cuts meet that criterion, and neither do I.
To put it more bluntly: it would be quite a trick to run the biggest budget deficit in the history of the planet, and still end a presidential term with fewer jobs than when you started. And despite yesterday's good news, that's a trick President Bush still seems likely to pull off.
Niebuhr thought that sustained moral energy in politics depended on religion's power to mobilize reason along with self-transcending love. The prophetic tradition, meanwhile, gave Jews and Christians some protection against the temptation to identify their social causes with God's will. Lincoln's second inaugural address expressed the prophetic insight, "The almighty has His own purposes." | | Back to Top | | |
 |
honorman
Registered Member
Date Joined Oct 2002
Total Posts : 1137
| Posted 10/30/2003 7:51 PM (GMT -6) | | | | |
|
DLW
Registered Member
Date Joined Apr 2003
Total Posts : 2457
| Posted 11/4/2003 4:30 AM (GMT -6) | | This Can't Go On
By PAUL KRUGMAN
Published: November 4, 2003
Academic economists often cite Stein's Law, a principle enunciated by the late Herbert Stein, chairman of the Council of Economic Advisers during the Nixon administration. The law comes with various wordings; my favorite is: "Things that can't go on forever, don't." Believe it or not, that's a useful reminder.
For we're now led by men who think that macho posturing makes Stein's Law go away. On issues ranging from budgets to foreign policy, they insist that we can sustain the unsustainable. And when challenged to explain how, they engage in magical thinking.
The prime example I have hammered on in this column is, of course, the federal budget. Realistic budget projections say that current policies aren't remotely sustainable. For example, a month ago a joint report of the Committee for Economic Development (a business group), the bipartisan Concord Coalition and the Center on Budget and Policy Priorities concluded that under current policies, federal debt would rise by $5 trillion over the next decade. And then baby boomers will start collecting benefits, and our debt will really explode.
Such explosive growth in debt can't go on forever, and it won't. Yet our current leaders and their apologists insist that the problem will magically solve itself. Last year's deficit came in slightly below forecasts, and we've had one quarter of good economic growth — see, we'll grow out of the deficit!
But we won't, and there will eventually be a day of reckoning. As Bill Gross of Pimco, the giant bond manager, says, "Sooner, perhaps later, our Asian creditors will wake up and smell the coffee." (Yes, the federal budget and the value of the dollar now depend on huge purchases of Treasury bills by the governments of Japan and China.) When they do, he predicts "higher import costs, a cutback in spending on cheap foreign goods, rising inflation, perhaps chaotic financial markets, a lower standard of living." Something to look forward to.
But the day of reckoning seems closer on a different front.
Some Americans may share the views of the Republican congressman who said that progress in Iraq was "a better and more important story than losing a couple of soldiers every day." (Support the troops!)
But whether or not you think troop losses are important, there's growing evidence that our Iraq strategy is unsustainable. The immediate issue is manpower. Some politicians are calling for a bigger force in Iraq — but even our current force levels can't be maintained.
In September the Congressional Budget Office analyzed how many U.S. soldiers could be kept in Iraq without extending tours beyond one year. The conclusion was that force levels would have to start dropping rapidly about five months from now, and that the forces in Iraq and Kuwait would eventually have to shrink by almost two-thirds. As the report explains, the Pentagon can use various expedients to maintain a larger force in Iraq, but all of these expedients would threaten to undermine our military readiness.
At a broader level, the accelerating pace at which Americans are being killed and wounded and the strains of occupation duties clearly pose difficulties for recruitment in a volunteer military. And at a still broader level, public support for this war — whose original rationale has turned out to be a mirage, if not a deliberate deception — will wilt if losses go on at this rate, no matter how tough the president talks.
For sure, good things are happening in Iraq. But are we making the kind of progress that would allow us to withdraw large numbers of soldiers, and greatly reduce casualties, in the fairly near future? That's a hard case to make.
Yet we keep expecting a magic solution. We'll get European, Indian and Pakistani forces to help us! But since we went to war without international support, they're not interested. We'll bring in the Turks! But the Iraqi Governing Council itself is bitterly opposed. We'll engage in "Iraqification," creating local forces that take the place of American troops! Let's hope that works — but hope is not a plan.
Just as the federal government is in no immediate danger of running out of money, our forces in Iraq are in no danger of outright defeat. But in both cases, current policies appear to be unsustainable: we can't go on like this indefinitely. And things that can't go on forever, don't.
Niebuhr thought that sustained moral energy in politics depended on religion's power to mobilize reason along with self-transcending love. The prophetic tradition, meanwhile, gave Jews and Christians some protection against the temptation to identify their social causes with God's will. Lincoln's second inaugural address expressed the prophetic insight, "The almighty has His own purposes." | | Back to Top | | |
| Forum Information | Currently it is Monday, November 09, 2026 1:52 PM (GMT -6)
There are a total of 97,718 posts in 6,040 threads.
In the last 3 days there were 0 new threads and 0 reply posts. View Active Threads
|
Forum powered by dotNetBB v2.42EC SP3
dotNetBB © 2000-2026 |
|
|