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Mort Zuckerman says our economy is in a phase called the ‘Grand Illusion.’
The present phase of our Great Recession might be called the Grand Illusion, because all the happy talk and statistics that go with it, especially on the key indicator of jobs, give a rosier picture than the facts justify. We are not really advancing. We are, by comparison with earlier recessions, going backward. We have a $1.3 trillion budget deficit. And despite the most stimulative fiscal policy in our history and the most stimulative monetary policy, with a trillion-dollar expansion to our money supply, our economy over the last three years has been declining or stagnant. From growth in annual GDP of 2.4 percent 2010, we bumped down to only 1.8 percent in 2011 and were still down at 2.2 percent in 2012. The cumulative growth for the last 12 quarters was just 6.2 percent, less than half the 15.2 percent average after previous recessions over a similar period of time. It is the slowest growth rate of all the 11 post-World War II recessions.
What has gone wrong? There seems to be a weakness in the investment of private capital. Today, corporate spending on investments is the weakest it has been in six decades. The billions invested in the Internet, spreading its application and comingling the technology with labor, boosted multifactor productivity but, as David Rosenberg of wealth-management firm Gluskin Sheff points out, most of that occurred several years ago. As he has written, a capex-led business recovery that breeds sustained productivity growth and decent job creation is what underscores the best and longest economic expansions since the end of WWII.
Anemic growth looks likely to continue because of various downers implicit in Bernanke’s caution. Sequestration will take $600 billion of government expenditures out of the economy over the next 10 years. Payroll taxes up 2 percent hit about 160 million workers and will drain $110 billion in aggregate demand. The Obama health care tax will be a $30 billion-plus drag. The surge in gasoline prices by some 50 cents recently may be temporary, as Bernanke suggests, but meanwhile represents another $65 billion of consumer cash flow. Conservatively, these nasties add up to roughly a 2 percent hit to baseline GDP growth when we are barely able to muster 2 percent growth.
Then there’s housing. Yes, it is nice to see a surge in some areas. But millions of homes are owned by banks or are in the foreclosure process. The New York Times noted last week that the home where Bernanke was raised, in a small town in South Carolina whose unemployment rate was recently 15 percent, had just been foreclosed upon the last time he visited, and one of his relatives was unemployed. Talk about symbolism. Single-family home sales and starts are barely off their depressed levels, and have only recouped 17 percent of recession losses. The housing market is mostly driven by investor-based, rental-related, multifamily buying activity, reflected in the fact that multiple housing units have reversed more than 70 percent of the damage they sustained from the recession.
Our economy’s most important player, the consumer, offers no relief from this cascade of downers. …
American.com calls the March jobs report an unmitigated disappointment.
… Notably, the sequester, which reduced government demand, passed into law without taking a toll on job growth. Virtually none of the markets affected by the sequester were changed in March. Manufacturing, mining, state government, financial services, transportation, and local government all maintained the status quo. Federal employment fell, but mostly in response to changes at the postal service. Excluding postal workers, federal employment actually rose by 5,000.
Since sequestration was cuts to future growth in government and not to present outlays, this makes sense. While Uncle Sam might hire fewer workers over the coming months than it would have otherwise, we shouldn’t see the U.S. government downsizing.
If Congress wants to get serious about jobs creation, it can start by creating a tax system that increases tax-home pay. Raising taxes is a good way to get people to stop shopping, and the reality is that higher taxes and higher fuel prices are much more to blame for the poor jobs numbers than anything else. To careful observers of the U.S. economy, March’s employment report was not a surprise – it was the natural response to shrinking demand, falling income, and poor decision making in Washington.
Foreign Policy looks at health problems in China and wonders if this is how a pandemic is formed.
Here’s how it would happen. Children playing along an urban river bank would spot hundreds of grotesque, bloated pig carcasses bobbing downstream. Hundreds of miles away, angry citizens would protest the rising stench from piles of dead ducks and swans, their rotting bodies collecting by the thousands along river banks. And three unrelated individuals would stagger into three different hospitals, gasping for air. Two would quickly die of severe pneumonia and the third would lay in critical condition in an intensive care unit for many days. Government officials would announce that a previously unknown virus had sickened three people, at least, and killed two of them. And while the world was left to wonder how the pigs, ducks, swans, and people might be connected, the World Health Organization would release deliberately terse statements, offering little insight.
plot — I should know, as I was a consultant for Steven Soderbergh’s Contagion. But the facts delineated are all true, and have transpired over the last six weeks in China. The events could, indeed, be unrelated, and the new virus, a form of influenza denoted as H7N9, may have already run its course, infecting just three people and killing two.
Or this could be how pandemics begin.
On March 10, residents of China’s powerhouse metropolis, Shanghai, noticed some dead pigs floating among garbage flotsam in the city’s HuangpuRiver. The vile carcasses appeared in Shanghai’s most important tributary of the mighty Yangtze, a 71-mile river that is edged by the Bund, the city’s main tourist area, and serves as the primary source of drinking water and ferry travel for the 23 million residents of the metropolis and its millions of visitors. The vision of a few dead pigs on the surface of the Huangpu was every bit as jarring for local Chinese as porcine carcasses would be for French strolling the Seine, Londoners along the Thames, or New Yorkers looking from the BrooklynBridge down on the East River.
And the nightmarish sight soon worsened, with more than 900 animal bodies found by sunset on that Sunday evening. The first few pig carcass numbers soon swelled into the thousands, turning Shanghai spring into a horror show that by March 20 would total more than 15,000 dead animals. …
… On Feb. 27, a man identified only as Wu, a 27-year-old butcher or meat processor, fell ill with respiratory distress, was hospitalized, and died on March 10. The day Wu succumbed a third individual, a 35-year-old woman identified as Han, was hospitalized in the city of Nanjing, though she came from distant Chuzhou City, in Anhui province, about 300 miles northwest of Shanghai. Han is reportedly in critical condition, in intensive care. To date, no connection between the three individuals has been found.
The elderly Li may have been part of a family cluster of illness, as his 55-year old son died of pneumonia in March, and another 67-year-old son suffered respiratory distress, but has survived.
On March 31 — Easter in the United States — China’s newly created National Health and Family Planning Commission (which includes the former Ministry of Health) announced that 87-year-old Li, Wu, and Han all were infected with a form of influenza denoted as H7N9 — a type of flu never previously known to infect human beings. The commission insisted that Li’s two sons (one dead, the other a survivor) were not infected with the flu virus — their ailments were reportedly coincidental, though they occurred at the same time as the elder Li’s demise. …
So much for the backstory: What is going on? …