[Marxism] 1937 redux?

Louis Proyect lnp3 at panix.com
Sat Jul 30 06:52:19 MDT 2011


The most revealing paragraphs from this article:

"Macroeconomic Advisers has estimated that the plan of Senator Harry 
Reid, the Nevada Democrat who serves as majority leader, for example, 
could shave a half a percentage point off growth as its spending cuts peak.

"Citing the debt reductions that Congress undertook in 1937 and that 
ushered in the most severe phase of the Great Depression, some 
economists fear that imposing austerity measures too soon could likewise 
result in a recessionary relapse."

Great. President Barack Hoover and the top DP Senator Harry Taft. Just 
what Americans voted for.


NY Times July 29, 2011
New Data Shows Sharp Slowdown in Growth Rate
By CATHERINE RAMPELL

WASHINGTON — The economy slowed to a snail’s pace in the first half of 
2011, underscoring a growing risk that the recovery itself may hang in 
the balance with budget and debt decisions in Washington.

The broadest measure of the economy, known as the gross domestic 
product, grew at an annual rate of less than 1 percent in the first half 
of 2011, the Commerce Department reported on Friday. The figures for the 
first quarter and the second quarter, 0.4 percent and 1.3 percent 
respectively, were well below what economists were expecting, and 
signified a sharp slowdown from the early months of the recovery.

The government also revised data going all the way back to 2003 that 
showed the recession was deeper, and the recovery weaker, than initially 
believed.

“There’s nothing that you can look at here that is signaling some 
revival in growth in the second half of the year, and in fact we may see 
another catastrophically weak quarter next quarter if things go wrong 
next week,” said Nigel Gault, chief United States economist at IHS 
Global Insight, referring to the debt ceiling talks.

With so little growth, the economy can hardly withstand further shocks 
from home or abroad, and worrisome signals continue to emanate from 
heavily indebted European countries.

If the domestic economy were to contract, any new recession would 
originate on President Obama’s watch — unlike the last one, which began 
a year before he was elected.

If Congress leaves existing budget plans intact, some of the 
government’s economic assistance, like the payroll tax cut, will phase 
out and thereby act as a drag on growth.

And by many economists’ thinking, whatever additional budget cuts 
Congress eventually agrees to (or does not) will weaken the economy even 
further.

On the one hand, if legislators cannot come to an agreement to raise the 
debt ceiling by Tuesday, the United States may be unable to pay all its 
bills. Borrowing costs across the economy could then surge, because so 
many interest rates are pegged to how much it costs the federal 
government to borrow. The forecasting firm Macroeconomic Advisers has 
predicted that the resulting financial mayhem would most likely plunge 
the economy back into recession.

On the other hand, if legislators do reach an agreement, it will 
probably include austerity measures that could chip away at the already 
fragile recovery. Spending cuts — particularly if they take effect 
sooner rather than later, as some of the House’s more conservative 
members want — will weaken the economy, since so many industries and 
workers are directly or indirectly dependent on government activity.

Macroeconomic Advisers has estimated that the plan of Senator Harry 
Reid, the Nevada Democrat who serves as majority leader, for example, 
could shave a half a percentage point off growth as its spending cuts peak.

Citing the debt reductions that Congress undertook in 1937 and that 
ushered in the most severe phase of the Great Depression, some 
economists fear that imposing austerity measures too soon could likewise 
result in a recessionary relapse.

Simply prolonging the debt negotiations could also damage prospects for 
growth in the third quarter, as businesses and families wait to make big 
purchases until the threat of a federal default subsides.

“The business and consumer uncertainty over whether the government will 
be able to pay its bills is the biggest thing weighing around our neck 
right now,” said Austan Goolsbee, the departing chairman of the 
President’s Council of Economic Advisers.

The economy is smaller today than it was before the Great Recession 
began in 2007, though the country’s labor force and production capacity 
have grown. The outlook for digging out of that hole is getting weaker 
by the day, and analysts across Wall Street have already begun slashing 
their forecasts for output and job growth for the rest of this year. 
Usually, a sharp recession is followed by a sharp recovery, meaning the 
recovery growth rate is far faster than the long-term average growth 
rate; last quarter, though, output grew at less than half of the average 
rate seen in the 60 years preceding the Great Recession.

Particularly distressing to economists is that consumer spending — 
which, alongside housing, usually leads the way in a recovery — has been 
extraordinarily weak in recent quarters. Inflation-adjusted consumer 
spending in the second quarter barely budged, increasing just 0.1 
percent at an annual rate, the Commerce Department report showed.

“People are spending more, but that spending is being absorbed in higher 
prices, not in buying more stuff,” said John Ryding, chief economist at 
RDQ Economics.

Even the brightest parts of the latest report were bittersweet. For 
example, motor vehicle output fell much less than was predicted after 
the natural disasters in Japan disrupted supply chains. But that means 
there will probably be a less buoyant bounce in coming months in autos, 
which economists were counting on to raise growth rates later this year.

Some economists cautioned not to read too much into this figure, though, 
or any individual quarterly number from the last report. The Commerce 
Department will probably make substantial revisions to the latest 
numbers, just as it did on Friday for the data released over the 
previous decade. Among the more jarring revisions in its latest report 
was the downgrade for growth in the first quarter of this year, from the 
original estimate of a 1.9 percent annual growth rate to a rate of just 
0.4 percent.

“Sometimes it feels like I’m a physicist who’s been flipped into a 
different universe trying to explain these revisions, rather than an 
economist tracking output growth,” said Mr. Ryding. “The economy is 
clearly performing poorly, though we don’t know quite how poorly because 
these individual quarterly revisions can sometimes be something of a joke.”

The slow growth rate is largely responsible for stubbornly high 
joblessness across the country. Businesses are sitting on a lot of cash, 
but are still reluctant to hire because there is so much uncertainty 
about the future of the economy and whether they will continue to have a 
steady flow of customers. As of June, 14 million Americans were actively 
looking for work, and the average duration of unemployment has been 
climbing to record highs month after month.

Slow growth takes not only a human toll, but a fiscal one. Tax revenues 
do not expand enough to pay down the nation’s debt.

Given some festering inflation concerns, it also seems unlikely that the 
Federal Reserve will swoop in with another round of monetary easing to 
invigorate the economy.

“There’s not going to be additional monetary stimulus, and it’s hard to 
imagine any fiscal stimulus given the current discussion in Washington,” 
Mr. Ryding said. “So what’s going to get us out of this? The inevitable 
conclusion is time, and that’s not very satisfactory.”




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