Understanding recession as not enough demand is about as certain a way to lose the thread as it is possible to be. In an exchange economy, people producing what others do not want to buy is the cause of unemployment and a flat economy. If you want to fix it, you need to let market adjustments happen. This is all brought to mind from the latest gloom discussed in a survey of American economists compiled and published by the Associated Press:
The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire, according to an Associated Press survey of leading economists.
The latest quarterly AP Economy Survey shows economists have turned gloomier in the past three months. They foresee weaker growth and higher unemployment than they did before. As a result, the economists think the Federal Reserve will keep interest rates near zero until at least next spring.
Yet despite their expectation of slower growth, a majority of the 42 economists surveyed believe the recovery remains on track, raising hopes that the economy can avoid falling back into a ‘double-dip’ recession.
The AP survey compiles forecasts of leading private, corporate and academic economists on a range of indicators, including employment, consumer spending and inflation. Among their forecasts:
• Economic growth the rest of this year and early next year will weaken, to less than 3 percent. From January through May, the economy grew at roughly a 3.5 percent pace.
• The unemployment rate will be no lower at the end of the year than it is now — 9.5 percent. A majority think it will be 2015 or later before the rate falls to a historically normal 5 percent.
• State budget shortfalls pose a ‘significant’ or ‘severe’ risk to the national economy. The loss of tax revenue has forced state and local governments to cut services and lay off workers.
Reluctance to spend and hesitant to hire are ways of stating things as if aggregate demand is what matters. The posting below that points out the ongoing and desperate attempts to prove that the stimulus did some good – based this time on some Keynesian econometric model – are wearing thin in the face of the realities the American economy faces. It’s what everyone is taught but is wrong all the same.
Who you gonna believe, as Keynes used to say, me or your lyin’ eyes?