US Economy in enduring recession at Catallaxy Files

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US Economy in enduring recession

So, the US recovery went into a slight reverse in the December quarter. The Keynesians at the heart of the media analysis put it down to a few chance effects

The New York Times chirped

The drop in gross domestic product was driven by a plunge in military spending, as well as fewer exports and a steep slowdown in the buildup of inventories by businesses. Anxieties about the fiscal impasse in Washington also contributed to the slowdown, one reason stockpiles grew more slowly.

The Times suggested that growth might be slow in the current quarter because there has been a temporary staunching in the growth of social security benefits, which pay out 25 per cent more than is collected. This led to dark mutterings that presume the Administration and Congress will have to get busy renewing the “recovery” by restoring the cash infusion or see demand remain sluggish.

The Fed said the relapse was due to Hurricane Sandy (do they now believe that “broken windows” depress economic activity rather than stimulate it?). Even so they are to expand money supply and to continue keeping interest rates close to zero “at least until the unemployment rate fell below 6.5 percent”. Others pointed to Caterpillar trimming its inventories.

The truth is that the US remains miles away from recovery. Rather than facing up to this the commentariat will, at teh prompting of insiders in government, continue pointing to features in GDP that are undermining the rosy picture everyone would prefer to see.

US GDP as measured is now just 3 per cent above its 2006 level – meaning GDP per capita is down rather more than this on 2006 levels. Cumulatively, the annual level of private investment, the all-important driver of income growth, is now just 5 per cent higher than in 2006, again rather less than the growth of population. Some recovery!

The underlying capacity of the US economy to achieve real growth is seriously damaged by the easy money prior to the GFC and by the same cancerous rise of the regulatory state seen in almost all western economies.

The Fed and Administration’s twofold strategy is first, an on-going infusion of government spending based on deficit financing (government borrowing is 10 per cent of GDP); this expenditure is overwhelmingly directed towards consumption rather than investment. Secondly, it is hoped that the demand, though unbacked by the productive capacity to support it, will, with artificially low interest rates, prompt private investment growth allowing the productive base to be restored.

This, if pulled off, would vastly elevate the credentials of those in favour of government management of the economy by fiscal and monetary policy tools. It is however difficult to see any precedent for such a government engineered recovery, especially since there is no disposition to reverse the growth of the regulatory fetters on enterprise.

The one bright spot is the oil and gas boom created by centuries of US enterprise butopposed at every turn by the Obama Administration.

Meanwhile, catastrophic risks are present from the vast increase in the money supply and the unrestrained growth in government debt.

But the likely outcome is a US economy bubbling along with real growth barely exceeding population growth until some shock forces a reversal in the growth of spending and regulation.

Written by Alan Moran

January 31st, 2013 at 11:21 am

Posted in Uncategorized

4 Responses to 'US Economy in enduring recession'

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A few more trillion in spending should pump prime the old girl.

Infidel Tiger

31 Jan 13 at 11:33 am
This reminds me of the keating years in which every failure of the current account to respond to the PJK magic was justified by a succession of one-offs, like Qantas buying some new planes or something.

As for Sandy, surely that was something of a supply shock.

Pedro

31 Jan 13 at 12:40 pm
Slightly OT, but, since Keynes is a patron saint of the left, his ideology is at least as popular as Marx’s with the zombies. This piffle from the “business” analysis website that News Limited paid $30 million for:

Having named a date, Prime Minister Gillard is beginning a very unusual run-up to a federal election – an extended celebration of remarkable economic figures, with nary a peek over the horizon to the post-election dawn.

Just as investment brochures must carry the warning ‘past performance is not a guarantee of future returns’, this Labor government should have stamped all over its publicity material ‘past performance was a giant stroke of luck’.

Well, that’s a little unfair. Labor has made some of its own luck. The GFC stimulus spending decisions made by Kevin Rudd’s ‘gang of four’ – Rudd himself, Julia Gillard, Wayne Swan and Lindsay Tanner – saved our bacon. Cash-splashes and rapidly deployed infrastructure spending, despite being badly managed (pink-batts-related fatalities being the most tragic symptom), were the right responses to the crisis.

That does not mean Labor was right to carry on stimulus spending for so long. But the Labor team deserve credit for a historically important role in setting up our current prosperity. Had thousands of small businesses folded in 2009, Australia would not have been as well placed to capitalise on the opportunities flowing from China’s own giant stimulus splurge, which sent demand for our commodities soaring. But history will record that we were ready, and the current beautiful set of numbers bear that out.

If only they could continue.

Tom

31 Jan 13 at 12:52 pm
The underlying capacity of the US economy to achieve real growth is seriously damaged by the easy money prior to the GFC and by the same cancerous rise of the regulatory state seen in almost all western economies.

What does that actually mean? When did the rise of the regulatory state actually become too burdensome and why did easy money hurt growth? I mean banks make easy money, Google makes easy money so do doctors and academics, I thought that was why capitalism was cool?

Simon

31 Jan 13 at 5:58 pm

A few more trillion in spending should pump prime the old girl.

Infidel Tiger

31 Jan 13 at 11:33 am

This reminds me of the keating years in which every failure of the current account to respond to the PJK magic was justified by a succession of one-offs, like Qantas buying some new planes or something.

As for Sandy, surely that was something of a supply shock.

Pedro

31 Jan 13 at 12:40 pm

Slightly OT, but, since Keynes is a patron saint of the left, his ideology is at least as popular as Marx’s with the zombies. This piffle from the “business” analysis website that News Limited paid $30 million for:

Having named a date, Prime Minister Gillard is beginning a very unusual run-up to a federal election – an extended celebration of remarkable economic figures, with nary a peek over the horizon to the post-election dawn.

Just as investment brochures must carry the warning ‘past performance is not a guarantee of future returns’, this Labor government should have stamped all over its publicity material ‘past performance was a giant stroke of luck’.

Well, that’s a little unfair. Labor has made some of its own luck. The GFC stimulus spending decisions made by Kevin Rudd’s ‘gang of four’ – Rudd himself, Julia Gillard, Wayne Swan and Lindsay Tanner – saved our bacon. Cash-splashes and rapidly deployed infrastructure spending, despite being badly managed (pink-batts-related fatalities being the most tragic symptom), were the right responses to the crisis.

That does not mean Labor was right to carry on stimulus spending for so long. But the Labor team deserve credit for a historically important role in setting up our current prosperity. Had thousands of small businesses folded in 2009, Australia would not have been as well placed to capitalise on the opportunities flowing from China’s own giant stimulus splurge, which sent demand for our commodities soaring. But history will record that we were ready, and the current beautiful set of numbers bear that out.

If only they could continue.

Tom

31 Jan 13 at 12:52 pm

What does that actually mean? When did the rise of the regulatory state actually become too burdensome and why did easy money hurt growth? I mean banks make easy money, Google makes easy money so do doctors and academics, I thought that was why capitalism was cool?

Simon

31 Jan 13 at 5:58 pm

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