...I'm okay with being REALITY-based.




Friday, October 31, 2003
      ( 10:45 AM )
 
Economy Roars Back (Yea, Right)

In case you got a momentary thrill by the much heralded news yesterday that the economy had its BEST QUARTER EVER!!! and that we ARE NOW IN GREAT RECOVERY!!! - I hope that you are sitting down when you review the facts today. Several bloggers have some good posts up about the reality of the economy - but I thought I'd go straight to the much-stalked source: Paul Krugman. He reminds us that this surge in the GDP happened before with the same lunatic delight eminating from the White House.

That's what happened 18 months ago,
when a preliminary estimate put first-
quarter 2002 growth at 5.8 percent. That
was later revised down to 5.0. More
important, growth in the next quarter
slumped to 1.3 percent, and we now know
that the economy wasn't really on the mend:
after that brief spurt, the nation proceeded
to lose another 600,000 jobs.

The same story unfolded in the third
quarter of 2002, when growth rose to 4
percent, and the economy actually gained
200,000 jobs. But growth slipped back down
to 1.4 percent, and job losses resumed.

Now Krugman isn't trying to rain on everyone's parade - he's just trying to remind us that we are dealing with an administration that will cling to anything in order to have GOOD NEWS delivered. The fact is, the last quarter's GDP growth was boosted by consumer spending, which actually downshifted in the last month of the quarter. It's a trend that couldn't keep up.

This can't go on — in the long run, consumer spending
can't outpace the growth in consumer income.
Stephen Roach of Morgan Stanley has suggested,
plausibly, that much of last quarter's consumer splurge
was "borrowed" from the future: consumers took
advantage of low-interest financing, cash from home
refinancing and tax rebate checks to accelerate
purchases they would otherwise have made later. If
he's right, we'll see below-normal purchases and
slower growth in the months ahead.

The problem is, of course, jobs. People can't keep spending money that they don't have. And whatever any reports say about growth, none of it is in the jobs sector. The problem is that Bush's tax cuts aren't what made last quarter's growth happen. Sure, any sort of tax cut might give a short term stimulus, but the trick is actually getting the economy back for the long term. And with ongoing job losses, I simply can't see how this signifies a true recovery. It would be great if it did.

To put it more bluntly: it would be quite a trick
to run the biggest budget deficit in the history
of the planet, and still end a presidential term
with fewer jobs than when you started. And
despite yesterday's good news, that's a trick
President Bush still seems likely to pull off.

When I look at the real world around me, everyone I know that is out of a job still has no prospects. Here in Oregon, we're still running at 8.0% unemployment - and more layoffs seem to be announced every week. Not to mention the fact that another 600 Reserve and Guard troops left Oregon this week, which will put their families in difficult economic straits as well. Let's face it. The biggest tax cuts went to the richest people in this country - the sorts of people who don't spend on every day consumer goods, they save and invest. The rest of the tax cuts that were received by middle-lower income folks are totally negated by the fact that our state taxes are now having to go up, just so our kids can stay in school. It's not that Bush doesn't care about the working people of this country... then again, all signs point to the fact that he doesn't. And it doesn't seem to bother him that much.

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