Sunday, January 6, 2013

The U.S. Economy: Is this the new normal?


Another jobs report, another sign of a tepid recovery.  For two years in a row we have averaged approximately 153k jobs/month.  Unfortunately, that is not enough to truly spur the economy into higher gear.  And while, many people like to look at the unemployment rate as the bell weather indicator of the state of employment in this country, there are other, perhaps more telling, numbers, and the picture is not to good:

·         Participation Rate: 63.6%

·         Long Term Unemployed (unemployed for >27 weeks): 4.8 million

·         Discouraged Workers (Not looking for work because they do not believe there are jobs): 1.1million

·         Not even counted: 3.3million who have not even looked for a job over the past year.

·         Public Sector Employment: 13,000 jobs, mostly in education, were cut in December

And while on the plus side, the 155k jobs included increases in several sectors, including construction, manufacturing, health services, and food services, government and central bank stimuli are ending.  The question, can the economy stand on its own two legs?  Let’s be honest though, it is not like we’re going all gangbusters to begin with.  2% GDP growth, while better than the Eurozone, is still lackluster.  The U.S. economy is driven by 70% consumer spending and the remainder comes from business to business and government spending, and while American households have been repairing their balance sheets, consumer spending cannot carry the weight alone especially with the renewed payroll tax and chronic unemployment.

So while economists argue whether the stimulus worked, it did, whether Keynesian Economics works, it does, whether we have a revenue or spending problem, we have both, and policy makers argue the right mix of revenue vs spending, and who is to blame, America is stuck in the left lane on the expressway behind a lost senior citizen.  Nobody can move, nothing can happen, everybody blames the other guy, and the media is infatuated with picking winners and losers. 

Throughout President Obama’s 1st term all we heard from conservatives was uncertainty was preventing companies and small businesses from hiring and investing; uncertainty from Obamacare, tax rates, financial  and environmental regulations, etc.  Well guess what, we are now past the Obamacare uncertainty, though Michele Bachmann didn’t get the memo, Dodd-Frank is now law , albeit many rules need to be written, the only uncertainty remains is establishing a long term Budget Control Act.

But is uncertainty a real issue or another red herring?  Corporate spending as a percentage of GDP fell dramatically through the Reagan years from over 13% to under 10%, but climbed back up to 13% during the Clinton years.  Today we are stuck around 10% of GDP.  Corporate cash hoarding is not new and isn’t completely tied to economic uncertainty, the fact is companies have maximized productivity gains and investment in labor is no longer an economic driver.

Have we reached a new normal where unemployment remains chronically high, wages depressed, corporate profits maximized, and all we have to reinvigorate the economy are more bubbles?  Consumer debt won’t fuel it, nor should it, corporate cash is sitting on the sideline, and government austerity has taken over the roundtable debate while investment is now a four letter word.  What should we do?

Here is the Diggaduh Five Point Plan:

1)      Invest in education, energy, and infrastructure (air traffic control systems, roads, and services) even if it swells the debt in the short term.

2)      Reform the leviathan of a tax code that incentivizes investment and punishes hoarding. 

3)      Establish long term plans to insure Medicare and Social Security remain solvent

4)      Establish long term plans to reign in discretionary spending tied to specific economic measures that can only be overturned with 2/3’s majority.

5)      End all subsidies and tax credits, except in the case of nascent industries support achieving long term goals in education, energy, and infrastructure.

I realize the above lack the necessary details, and that is up to legislators to fill in the blanks.  Simply, we need will all need to modify, not give up, some of our sacred cows in the long run while in the short term we wisely invest and spend.

 

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