Caroline Rocks!

The post-mortems on the July employment report made me realize I’d missed the recovery ----- What we had was a government-prescribed course of amphetamines (to keep it up), antibiotics (to prevent infection) and antidepressants (to make it feel better). It endured regular steroid injections from both monetary and fiscal authorities. And it still has no real muscle. Inventory restocking isn’t a... [more]

The post-mortems on the July employment report made me realize I’d missed the recovery ----- What we had was a government-prescribed course of amphetamines (to keep it up), antibiotics (to prevent infection) and antidepressants (to make it feel better). It endured regular steroid injections from both monetary and fiscal authorities. And it still has no real muscle. Inventory restocking isn’t a strategy for long-term growth. It’s an adjustment to the dramatic drawdown in 2009. When it’s done, it’s done, unless businesses and consumers are interested in investing and spending. Inventory accumulation accounted for more than half of gross domestic product growth in the fourth quarter, three- fourths in the first quarter and a little less than half in the second quarter. ---------------------------- On the fiscal front, the government threw huge sums of money at the economy. It paid people to buy cars and homes. It paid them to weatherize their houses, maybe the same ones the government paid them to buy. It paid them to buy appliances for the houses the government paid them to buy. And it paid banks to modify mortgages. What did we learn from this exercise? That, by golly, if someone were planning to buy a home anyway, an $8,000 tax credit acts as an inducement to do it that much sooner! --------------------------------- So, yes, if the goal is to put money in the pockets of people who will spend it, as Democrats in Congress are wont to say, then the $862 billion fiscal stimulus has been a smashing, but not lasting, success. Now what? The recipients of government largess buy goods and services, putting money in someone else’s pocket. That’s the Keynesian argument for more spending to stimulate aggregate demand. ---------------------------- Hard to see how. President Barack Obama is working against himself and his party by bashing banks, insurance companies and energy producers in an effort to get his legislative agenda through Congress. That strategy has a populist appeal, but it’s not the way to win friends and influence people in the business community. There is no quick fix, no painless solution, for what ails the U.S. economy. It took a long time to accumulate enough leverage and bad debts to sink the economy. It should take at least as long to recover. [less]