The Beatings Will Continue Until Morale Improves

Below is an interesting chart from The Economist that compares America’s current anemic economic recovery from the 2007-09 recession with those of the 1973-75, 1981-82, and the 1990-91 recessions.

Source: The Economist

The bottom line is that the current recovery is lagging both in terms of GDP and employment.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
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11 Responses to The Beatings Will Continue Until Morale Improves

  1. Unfortunately, “the beatings will continue until morale improves” is an accurate description of US policy.

    The US can borrow at insanely low interest rates, because the market thinks growth is not forthcoming & that the debt isn’t a crisis; demand hasn’t picked up since the financial crisis of 2008; profits have recovered and businesses are holding onto cash; inflation remains rock-bottom; unemployment has settled into crisis levels.

    We have everything but the voice of God saying, “now is the time for stimulus spending.”

    And our whole political discussion is about… slashing spending. Which is contractionary, as the Brits are learning, all over again.

    It all looks pretty hopeless. Of course we’ll get out of it eventually– capitalism works really well– but we’re making things much worse, for no reason.

    • Stimulus spending is a blunt instrument. It is good at preventing catastrophe, but does not help promote long-term economic growth.

      Some historians have argued that FDR’s policies actually lengthened the Great Depression. The last stimulus is a testament to this effect. It provided a temporary boost in demand, but that boost was short-lived. The government can do more by providing regulatory certainty for businesses.

      Right now, company balance sheets are flush with cash, but companies are concerned about lack of certainty regarding regulations and hence are not spending. Additionally, the American consumer is all but tapped out. Bond markets would likely react negatively to the government assuming even more debt.

      The President would do well to consult CEOs on ways to help stimulate demand and provide more regulatory certainty. Were he to do this, the economy would be on a faster track to get out of this funk. Just throwing money at the problem by more borrowing is not the answer.

      • Right now, company balance sheets are flush with cash, but companies are concerned about lack of certainty regarding regulations and hence are not spending. Additionally, the American consumer is all but tapped out.

        It’s not true that “lack of certainty” is one of the top 50 problems businesses face. Businesses themselves cite declining demand, not the GOP-talking point of “uncertainty in regulations,” as the main problem they face.

        In a world with tapped out consumers and companies flush with cash– which, happily, almost never happens– the situation calls for stimulus spending.

        Bond markets would likely react negatively to the government assuming even more debt.

        We go into the recession with the bond markets we have, not the bond markets we imagine we had. Bond markets are telling us to issue more debt– growth is weak, interest rates on bonds are rock-bottom low (below zero on 5 & 7 year rates).

        • “It’s not true that “lack of certainty” is one of the top 50 problems businesses face. Businesses themselves cite declining demand, not the GOP-talking point of “uncertainty in regulations,” as the main problem they face. ”

          Don’t take my word for it. Here is Obama campaign donor, Steven Wynn, who heads a Fortune 1000 company:

          Today, Obama supporter, George Soros, sent a letter to his investors announcing that he would be closing his fund to outside investors because of new financial regulations.

          Heck, I took a cab home today, and the first cab would not accept my credit card because fees had risen in response to the consumer protection act, or whatever heck that bill is called that protects people who run up their credit cards.

          People also are not hiring because of uncertainty regarding the costs of the Healthcare Reform Act.

          Declining demand is issue #1, but regulatory uncertainty is issue #2. It may be annoying that the GOP is using it as a talking point, but businesses operate better when the rules of the are clear. Right now, they just aren’t.

          “Bond markets are telling us to issue more debt– growth is weak, interest rates on bonds are rock-bottom low (below zero on 5 & 7 year rates).”

          The bond market is currently operating under the assumption that the debt ceiling will be increased moderately and that there will be a reduction in spending growth and a modest increase in taxes. It is not banking on another stimulus. If the President were to announce a new stimulus program, yields would rise and bond prices would fall as naturally as an apple falls from a tree because of gravity. The reason yields would rise is that the more debt an entity assumes, the higher the risk of default. No one would continue buying US treasuries without more compensation for the additional risk.

        • By the way, on the stimulus this is the argument we are having, which believe it or not, economists still have not resolved:

          I’d like to thank Moe for bringing this video to my attention a few months ago.

  2. Chris Van Trump says:

    To be honest… I could listen to that video for hours.

  3. Which one? Steve Wynn or Keynes vs. Hayek.

    I am guessing the latter…

    • Chris Van Trump says:

      You guessed right!

      The tricky part for people who try to disprove Keynesian economics comes with the fact that the Keynesian position almost inevitably has a fallback position: “You didn’t spend enough.”

      • Definitely. Paul Krugman makes a living doing exactly just that.

        • That’s unfair to Krugman. He said the stimulus was too small at the time.

          See: http://krugman.blogs.nytimes.com/2011/07/01/a-small-note-on-the-stimulus-debate/ or, better, from Feb 2009 being right about everything, this: http://www.huffingtonpost.com/2009/02/17/paul-krugman-stimulus-too_n_167721.html

          The anecdotes of people being mad at Pres. Obama don’t disprove that our central economic problem is lack of demand. There’s no evidence for the proposition that “uncertainty” is a factor, or even that it’s worse now than in the past.

          • It’s a self-fulfilling cycle. When businesses are uncertain about the economic environment (like the ultimate cost of hiring a new employee once you bake in the cost of healthcare regulation, for instance), they are unlikely to hire more people. Lack of hiring leads to persistently high unemployment. Unemployed people spend less. Since ~70% of GDP is from consumer spending, growth becomes anemic, and demand declines. Provide aggressive incentives for businesses to hire people (as opposed to regulatory disincentives), and we will be on our way out of the crisis.

            We pumped nearly $1 trillion into the economy, and long-term unemployment is still terribly high. Which leads to the next question: how much would the government have to spend to get the country on a sustainable growth trajectory? I frankly do not think it can be done with a stimulus because all stimuli do is create short term bursts of artificial demand. Used often they misallocate resources and can lead to bubbles. Exhibit A is the housing crisis.

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