published Monday, August 8th, 2011

Slipping back into recession?

Economists say that technically, the recession is over. But as economic pain continues across the United States, it's no wonder a lot of Americans are not convinced. Many believe our country is still in a recession. And even among those who think we are no longer in a recession, a high percentage believe we are headed toward one, according to some polls.

The latest economic figures unfortunately do not ease those fears. If anything, they hint that indeed we may be slipping into another recession.

The Commerce Department has revised -- downward -- its estimate of economic growth for the January-through-March quarter of this year. The original estimate of growth was a weak 1.9 percent. But now, the Commerce Department says even that meager figure was too optimistic. Actual economic growth in the first quarter of this year was only 0.4 percent! That was followed by estimated growth of only 1.3 percent from April through June.

It's tempting to think, well, at least those numbers show growth rather than contraction of the economy. But such feeble "growth" isn't helping millions of Americans who are unemployed and have few prospects of getting a job. The economy has produced some jobs over the past few months, but job creation has not nearly kept up with normal growth in the size of the workforce through immigration, students finishing school and so forth. Is the economy really "growing" in any meaningful way if it cannot keep up with ordinary workforce and population growth?

So what's the trouble? Well, there are a lot of things, some of which we can readily do something about and others that require long-term efforts:

  • High gas prices have sharply curtailed growth, because instead of using discretionary income on, say, clothing, cars and durable goods, Americans are having to devote more money to purchasing gasoline. The United States could do a great deal to reduce gas prices by opening up more oil-rich areas of our country to exploration. Unfortunately, the Obama administration has shown little interest in that, so we continue to get more oil than necessary from overseas nations, some of which are hostile to America.

  • The continued housing crisis is also a huge drag on our economy. Sales of new homes fell in June to an annual rate of only 312,000. That is not even half the rate one would expect in a reasonably healthy housing market. And that has lots of negative spin-off effects. Besides idling construction workers, lack of home construction harms industries such as textiles, home furnishings and others.

The housing collapse, sadly, was caused in large part by government pressure on lenders to give risky mortgages to people who were not creditworthy. It will take a painfully long time to clear the backlog of foreclosed homes out of the market.

  • Consumer spending is extremely weak. The Federal Reserve Bank of San Francisco recently estimated that the typical American is now spending almost $200 less per month than before the recession. That has a devastating impact, because consumer spending accounts for about two-thirds of our economy.

  • An enormous tax increase is coming. Tax relief enacted early in the Bush administration will expire unless Congress votes by the end of next year to extend it. With Democrats controlling the Senate, it's almost certain that some or all of the Bush tax cuts will not be extended, sending more money to Washington and removing it from the private sector.

Since excessive Washington spending got us into the economic crisis, why should we think higher taxes and more Washington spending will get us out of it? And why would companies invest in expansion and hiring when they know their taxes may go up sharply, possibly making those investments not worth the cost?

Economists and the rest of us can debate whether our nation is in a recession, but we will certainly invite a new one if we do not reject the policies that created the last one.

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nucanuck said...

Can anything be more irresponsible than not funding/taxing what government spends? If we go to war, tax for it. If we extend unemployment benefits, tax for it. If we are only going to tax hedge fund earnings by 15%,raise everybody elses taxes to make up for it.

Or don't spend in the first place.

August 8, 2011 at 12:25 a.m.
EaTn said...

Those more mature right-wing legislators in DC should have taken their childish freshmen aside and explained to them what happens when someone stupidly pulls a fire alarm in a crowded building.

August 8, 2011 at 7:55 a.m.
rolando said...

It is those same "mature", semi-permanent, 10+ years in office legislators who got us into this quagmire, EaTn.

The freshmen are trying to clean up their mess. It will take two more elections to clean out the dross.

nucanuck, you hit the mark with your last sentence and your first para was sensible, even very reasonable. Welcome to the TEA Party side or the as you go.

Get rid of the IRS, eliminate all deductions -- business or private -- , end all subsidies, allowances, etc, and establish some kind of sales or "Fair" tax might be another, or additional, solution.

Finally, get gov't sticky fingers the H out of the economy.

August 8, 2011 at 9:43 a.m.

I think it's foolish to believe the recession ever ended. Just because the Administration and the media said so doesn't make it so.

All the people I know who are struggling and have lost their jobs would back me up on that.

If anything it's gotten steadily worse.

August 8, 2011 at 10:28 a.m.
nucanuck said...

rolando,I have always favored the Austrian School of economic thought. The bigger problem is how to reverse course and not sink the ship. The Tea Party, unfortunately, is reactionary instead of thoughtful. Maybe they can gain some depth, but so far, it doesn't show.

The tax code needs reform badly,on that we can agree. The Fed is part of the problem, not the solution, but nothing rivals the rot in the financial/banking sector. IMO, that has to fall before America can begin to right herself.

August 8, 2011 at 11:48 a.m.
LibDem said...

I like the 'pay-as-you-go' concept though it is difficult to synch into overnight. If the Congress wants an Edsel in every garage, they pass the Edsel Tax to pay for it. The people will let them know how they feel.

When the Iraq War was launched, Thomas Friedman (somewhat tongue in cheek, I presume) suggested a $1/gallon Patriot Tax. This tax would have paid for the war, reduced oil imports and allowed the American people to participate in the war. The subtext was that the American people would have quickly ended the war.

August 8, 2011 at 12:29 p.m.
hambone said...

Well, S&P downgraded the US late friday, the stock market took another dive today.

I can still hear Boehner bragging "I got 98% of what I wanted, I'm happy".

August 8, 2011 at 4:48 p.m.
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