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The first five quarters following the 1981-2 recession averaged growth rates of 6.2%. The first four quarters following 2008-9 recession have averaged 3.0% The fourth quarter out in the first period had growth of 8,1%. Friday we learned the fourth quarter this time had growth of 1.6% The WSJ editors have the story.
To no one’s surprise except perhaps Vice President Joe Biden’s, second quarter economic growth was revised down yesterday to 1.6% from the prior estimate of 2.4%, which was down from first quarter growth of 3.7%, which was down from the 2009 fourth quarter’s 5%. Economic recoveries are supposed to go in the other direction….
… Now that the failure is becoming obvious, the liberal explanation is that things would have been worse without all of this government care and feeding. The same economists who recommended the stimulus are now producing studies, based on their Keynesian demand models, claiming that it “saved or created” millions of jobs, even as the overall economy has lost millions of jobs. The counterfactual is impossible to disprove, but the American people can see the reality with their own eyes. …
In Euro Pacific Capital, Peter Schiff looks back at predictions about the economic recovery.
…The major mental block is that most economists believe that an economy grows as a result of spending. Any policy that encourages spending and discourages savings and investment is considered beneficial. Unfortunately, these policies, which only succeed in growing debt and government, act more as an economic sedative than a stimulant.
On the subject of the “recovery,” I’d like to highlight some of my past predictions, and those of my colleague Michael Pento. With the benefit of hindsight, you can see that although these thoughts were widely dismissed as chronic pessimism at the time of their publication, the current situation supports our conclusions. Although some of our predictions, like for higher bond yields, have yet to materialize. …
Selections from the writings of Michael Pento, Chief Economist at Euro Pacific Capital:
June 30, 2010
“The cause of the Great Depression in the 1930s, and the Great Recession beginning in 2007, was one and the same: an overleveraged economy. Excessive debt levels are the direct result of the central bank providing artificially low interest rates and of superfluous lending on the part of commercial banks.
The easy money provided by banks eventually brings debt in the economy to an unsustainable level. At that point, the only real and viable solution is for the public and private sectors to undergo a protracted period of deleveraging. The ensuing depression is, in actuality, the healing process at work, which is marked by the selling of assets and the paying down of debt. Unfortunately, our politicians today are focused on fighting this natural healing process by promoting the accumulation of more debt.”
The Economist blogger “W.W.” from Iowa City comments on what caused the credsis.
… this is a story about how policies intended to reduce inequality had the unintended consequence of precipitating America’s worst economic slump since the Depression. It’s very important that we’re straight on what the story is, since different stories may have very different implications for policy. If the story is that the level of inequality itself—and not our ideas about or political reactions to it—indirectly caused the crisis, then we may think that narrowing the gap is a matter of urgent necessity. But if the story is that an ill-conceived political attempt to reduce inequality—and not the fact of inequality itself—led to apocalyptic economic devastation, then we may well conclude that it is better to refrain from equalising initiatives unless we are quite certain they will not backfire. …
We have another good editorial from the WSJ editors on Intel’s CEO, Paul Otellini, discussing the government policies and taxes that hurt the economy.
American business leaders were remarkably quiescent during the Obama Administration’s first 18 months, but more are now speaking up as the threats to the economic recovery and long-term U.S. prosperity become more serious. The latest is Intel CEO Paul Otellini, who warned a technology forum this week that without a change in U.S. government policy “the next big thing will not be invented here. Jobs will not be created here. And wealth will not accrue here. Ultimately, we will face an inevitable erosion and shift of wealth—much like we are witnessing today in Europe.”
The bulk of Mr. Otellini’s remarks was pitched broadly at long-term U.S. problems, many of which predate the current Administration. Like many other CEOs, he lamented the decline in U.S. education performance relative to emerging nations. And he focused in particular on the hostile U.S. tax climate that he said is undermining a “culture of investment” that has long been an American comparative advantage.
“Our combined state and federal corporate income tax rate”—about 38%—”is the second highest in the industrial world. It is precisely these high statutory corporate rates that punish the most dynamic and innovative firms and hinders their ability to compete globally,” Mr. Otellini said. “I can tell you that it costs $1 billion more to build, equip and operate a semiconductor manufacturing facility in the U.S. Ninety percent of the cost difference is the result of tax and incentive policies. With such policies, are we surprised that companies are investing overseas?”…
In CNet, Declan McCullagh has more remarks from Paul Otellini and others on how our government makes it tough for businesses to grow.
…Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: “I think this group does not understand what it takes to create jobs. And I think they’re flummoxed by their experiment in Keynesian economics not working.”
Since an unusually sharp downturn accelerated in late 2008, the Obama administration and its allies in the U.S. Congress have enacted trillions in deficit spending they say will create an economic stimulus but have not extended the Bush tax cuts and have pushed to levy extensive new health care and carbon regulations on businesses.
“They’re in a ‘Do’ loop right now trying to figure out what the answer is,” Otellini said.
As a result, he said, “every business in America has a list of more variables than I’ve ever seen in my career.” If variables like capital gains taxes and the R&D tax credit are resolved correctly, jobs will stay here, but if politicians make decisions “the wrong way, people will not invest in the United States. They’ll invest elsewhere.” …
David Goldman has two topics in this blog. He lists his top twenty reasons why the economy isn’t recovering, and he discusses the effects of demographics on various economies. Here are three of his reasons why a recovery is still far off:
…State and local pension funds are being called out on their $3 trillion deficit (actually higher if returns remain as dodgy as I think they will be).
…State and local tax increases will be required in huge volume, either directly, or indirectly through privatization of municipal services, which in turn will lead to layoffs of bloated staffs and price increases.
…The Obama administration will rescind the Bush tax cuts, adding a federal tax increase to the miseries already conspiring to take the economy down.
The Economist has a cheap way to lose weight.
CONSUME more water and you will become much healthier, goes an old wives’ tale. Drink a glass of water before meals and you will eat less, goes another. Such prescriptions seem sensible, but they have little rigorous science to back them up.
Until now, that is. A team led by Brenda Davy of Virginia Tech has run the first randomised controlled trial studying the link between water consumption and weight loss. A report on the 12-week trial, published earlier this year, suggested that drinking water before meals does lead to weight loss. At a meeting of the American Chemical Society in Boston this week, Dr Davy unveiled the results of a year-long follow-up study that confirms and expands that finding. …
…Why this works is obscure. But work it does. It’s cheap. It’s simple. And unlike so much dietary advice, it seems to be enjoyable too.