Nine Reasons the Economy is Not Getting Better
Jobs data paint a discouraging picture of more pain to come
Can we find comfort in knowing that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power because employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled from 4.8 to 9.5 percent in just 16 months, a record rate so fast it may influence future economic behaviors and outlooks. Bear in mind that the lackluster increase in inventories suggests that there's little prospect in the pipeline of real growth in consumption, investment, and exports. So the terrible state of the labor market is likely to be a strong head wind against consumer spending for a long time as wages and overall income growth are decelerating and households, within a fairly short period, will have received their full portion of the stimulus package.
How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments—Medicaid, jobless benefits, and the like—that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10 percent of the stimulus package today.
Second, the stimulus package may have been well intentioned, but it was too small and too badly constructed to get money into the economy fast enough to replace lost consumer and business spending and to slow unemployment. Workers' pessimism is justified: About 40 percent believe the recession will continue for another full year. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.
It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden told it as it is when he said the administration misread how bad the economy was. The administration inherited the problem, but then it failed to understand how ineffective its solution would be. The program was supposed to be about jobs, jobs, and jobs. It wasn't. The recovery act may have been a single piece of legislation, but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.
An additional $150 billion, which was allocated to state coffers so as to continue existing programs like Medicaid, did not add new jobs. Hundreds of billions of dollars were set aside for tax cuts and for new benefits for the poor and the unemployed, and that did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.
Next year, state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending or raise taxes, or both. The complete state and local government sector, which makes up about 15 percent of the economy, is beginning the worst contraction in postwar history in the face of a deficit gap of $166 billion for fiscal year 2010, according to the Center on Budget and Policy Priorities, and a cumulative gap of $350 billion in fiscal year 2011.
Similarly, households overburdened with historic levels of debt will be saving more. The savings rate has already jumped from zero in 2007 to almost 7 percent of after-tax income now, and it is still rising. Every dollar of saving comes out of consumption. Because consumer spending is the economy's main driver, we are going to have a weak consumer sector, and many businesses simply won't have the means or the need to hire employees. In the aftermath of the 1990-1991 recession, Americans bought houses, cars, and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so.
Reader Comments
And..
They can stop taxing us to death.
what i think
I think it’s all the foreigners that keep coming in to be country I mean come on can we just get up and go to some of the other contras? the answer to that is heck no we can go to Mexico and may get a good job but we can’t just buy a home like they can or rent one I mean we are only allowed 90 days at a time but they get to come to the use and work I think they need to pass a law that you need to be a us citizen to buy a home in America. And that will lead to the end of job loss!!!!!!!
stimulus plan
What we should demand is instead of bailing out all these big companies that are in trouble like Fanny Mae and Freddy Mac 87 BILLION.... They should have devided that money up between every man women and child above the age of 18 who are genuine American citizens and after taxes would have given a 3 family household whose ages were 18 aand above almost 1 MILLION dollars now thats a stimulus plan and wouldjump start the economy quick WE AS AMERICAN
citizens have worked and paid for it and deserve it as we have earned it already but our government will waste our money throwing it after bad and excessive spending and people who are in dire straights can't get the help they need but illegal aleins can get what they need. We need to MAKE our government work for us not us for them. FIRE everyone in congress and start over put people in place that love this country and what its supposed to be about.
Both parties blame each other for the mess were in but the facts are the 542 people who make up our congress are responsible and should be held accountable ..
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