Budget cuts and pain sharing

8.8.2011 Leave a comment

Catherine Rampell of The New York Times delivers a gloomy prediction:

If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.

Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009.

After reciting the kinds of pain a demand constrained economy can impose on a people, Rampell goes on to note:

There is at least one factor, though, that could make a second downturn feel milder than the first: corporate profits. Corporate profits are at record highs and, adjusted for inflation, were 22 percent greater in the first quarter of this year than they were in the last quarter of 2007.

Nervous about the future of the economy, corporations are reluctant to make big investments like hiring. As a result, they are sitting on a lot of cash.

While this may not be much comfort to the nation’s 13.9 million unemployed workers, it may be to their employed counterparts.

Do you find it hopeful knowing that America’s corporations are sitting on a lot of cash, money they might use to retain part of their labor force? I do not. Eventually, the American economy will need to grow if it is to master the unemployment and private debt problems. Growth, however welcomed it would be, should not be expected from a stagnating demand constrained economy during a time of politically imposed austerity.

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Complacency triumphs over catastrophe

6.22.2011 1 Comment

The New York Times provides this report on the Fed and its plans:

And at the end of June, the Federal Reserve finished its work and rested.

The nation’s central bank said Wednesday that it would complete the planned purchase of $600 billion in Treasury securities next week as scheduled, and then suspend its three-year-old economic rescue campaign, leaving in place the aid it already is providing but doing nothing more, for now, to bolster growth.

“The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected,” the Fed said in a statement. “The committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline.”

Shadow States compares the official U3 and U6 unemployment rates to its adjusted rate:

Shadow Stats and Official Unemployment Rates

I think it is rather clear that the Federal Reserve Bank, the Obama administration and the current Congress have not done enough to address the employment problem in the United States. Nor, it seems, do they intend to do much about this human disaster.

Complacent and vicious — that’s the American way of government when it comes to providing for common folk.

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