Economy To Go From Bad To Worse?
By Justin Gardner | Related entries in Barack, Business, Economy, Foreign Policy, Money, The World
Ambinder is talking to the Obama team, and they don’t think the economy is going to get better any time soon…
It’s quite unsettling to talk to members of Barack Obama’s transition teams these days, especially those who are helping with the economics portfolio. Without going into details, the sense I get from them is that they are very worried that the economy will get a lot worse before it gets better. Not just worse… a lot worse.As in — double digit unemployment without the wiggle factors. Huge declines in aggregate demand. Significant, persistent deficits. That’s one reason why the Obama administration seems to be open to listening to every economist with an idea and is stocking the staff with the leading lights of the field. In one sense, the general level of concern among Obama advisers and transition staffers is reassuring; they get the magnitude of the problems, and they’re not going to assume that, just because the bottom has never dropped out before — certainly not in the lifetimes of most people doing policy these days, the bottom will never drop out.
We already know that the underemployed rate (which is a FAR better indicator of employment) is at 12.5% and the economy is shedding jobs like only one other time in history. And it took the New Deal and a massive world war to pull us out of that mess.
And speaking of foreign policy, the economic impact is being felt worldwide and could provide some pretty significant challenges for the President elect in the coming years…
Where the discussion isn’t going, at least in public, (or the PR level), is the possibility that the first foreign policy crisis the administration will face will be the complete economic collapse of a large, unstable nation. To be sure, Pakistan is nearly broke, and U.S. policy makers seem to be aware of that; but a worldwide demand crisis could lead to social unrest in countries like Indonesia and Malaysia, Singapore, the Ukraine, Japan, Turkey or Egypt (which is facing an internal political crisis of epic proportions already). The U.S. won’t have the resources to, say, engineer the rescue of the peso again, or intervene in Asia as in 1997.
Me? I’d start to detail all of these problems specifically so when something does happen it’s not a surprise. Knowledge is power and the more they give the American people, the easier it’ll be to convince them of their solutions later on.
Still, this seems like it’ll be a much tougher road than previously expected, and Americans may have to get accustomed to bad news for a couple years.
This entry was posted on Thursday, December 11th, 2008 and is filed under Barack, Business, Economy, Foreign Policy, Money, The World. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
December 11th, 2008 at 11:48 am
Folks who have been hoping the worst was over don’t get the notions of ripples and dominoes very well, do they? The giant stock market retraction won’t finish rippling through for awhile. Colleges with endowments, state governments, and folks near retirement age are all sucking serious wind. All these folks will adjust by spending less of goods and services. That will be the next ripple. All the businesses that sell good and services to state gov’ts, colleges, and retirees. We will see a host of struggling retail enterprises fold in January through March. If you aren’t #1 or #2 in your category even though you spent monet trying to be #1 ior #2, you’re done for. Lots of independent retailers and small businesses will crash, too.
The one positive that I can see is that at least so far, folks haven’t figured out better options to buying US gov’t bonds and bills. Bills offering close to 0% interest are selling./ This means that the gov’t price for borrowing is nil.
Interesting note: today’s unscientific reader CNN poll on what the gov’t should do reports that 36% want the gov’t to give them another check, 26% say “stop spending,” and 24% want spending on roads and bridges.
I am in favor of government spending that focuses on improving, updating, and modernizing our national infrastructure. In particular, we ought to focus on things that would need to be addressed sooner or later anyway, like the national electrical grid and communications, and updating schools, roads, bridges, and so on.
I think a direct refund to taxpayers, while a welcome relief to some individuals, would not encourage economic growth.
December 11th, 2008 at 1:02 pm
If Communist China has decided to cut corporate income and business taxes, in order to help the economy, but Obama refuses to do so, does that mean we are more communist than they are? Are they, perhaps, getting it wrong where Obama is getting it right?
Oh, and by some accounts Roosevelt’s New Deal prolonged the great depression by 7 years. From UCLA professor Howard Cole:
“”The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”
December 11th, 2008 at 1:29 pm
The revisionist case for the New Deal having dragged out the Depression is largely discredited in serious circles.
The New Deal is very poorly understood by people today as many of its achievements and efforts are no longer around. The NRA and the WPA in particular.
Another thing to remember about the 1930’s depression is the dust bowl and the associated declines in agricultural production and employment, prompting migration to cities, particularly in the west, thereby adding greater pressures to their economies.
Finally it should be noted that the 1937 slump is nearly universally blamed on the attempt to retract from some of the New Deal policies to satisfy political critics.
Do your own research but beware of new-fangled hype that all seems to agree. There are literally decades of scholarship on the New Deal and evidence from dozens of other such cases here and in other countries that all consistently point to New Deal-style remedies being effective against a severe economic downturn.
If you think about it from a high, general level it is kind of obvious, too.
December 11th, 2008 at 1:34 pm
A friend sent me the UCLA study link back in October and it’s truly interesting. Recommended reading keeping in mind that this is fast becoming a meme on the Right and is often swallowed bones and all by FDR haters (distinguished from FDR skeptics). I have yet to find a detailed response/rebuttal to the study.
December 11th, 2008 at 2:25 pm
A close look at Cole’s study will show that no response is necessary. The study does not make the case that the New Deal in its entirety extended the Great Depression (i.e. specific aspects like government spending are not the culprit) but that in fact the National Industrial Recovery Act (NIRA) was the culprit. This is irrelevant in attacking Obama’s policies, since he has proposed nothing like the NIRA, which permitted high collusion among industries (as well as the National Relations Act which increased union membership). His stimulus package is being debated by economists not because it might extend a recession but because it might be inefficient and impose higher costs on future generations than the benefits we derive from it now.
Also, Obama has decided not to repeal the Bush tax cuts, so perhaps he is getting on the right path Jimmy? I would agree with you that we should put less emphasis on taxing incomes and savings, but do you agree that higher consumption taxes should be put in place? If not, what do you propose?
December 11th, 2008 at 3:14 pm
Jimmy,
The reason the New Deal started not working is Roosevelt tried to balance the budget again. It wasn’t until WWII rolled around that our country was truly pulled back up out of a Depression.
In other words, Obama’s plan can work…he just has to be bold about it and not be afraid to deficit spend.
Also, to answer your question about Communism: NO.
December 11th, 2008 at 3:29 pm
L, you’re assuming that I’m seeking a response to the study in the context of the current crisis, which I’m not. I’m simply interested in a response on the merits of the study itself, not its applicability now. I’ll let Jimmy assert those tenuous connections himself.
December 11th, 2008 at 4:40 pm
blackout,
Fair enough, I was interested in pointing out the irrelevancy of Jimmy’s citation of the study and quote.
December 12th, 2008 at 8:54 am
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