The First Post has a report from the annual meeting of the American Economic Association.
I don’t like quoting at too much length, but this one is pretty important, so I’m going to and remind you at the same time there is still more in the original:
Despite optimism reflected in stocks hitting a 15-month high yesterday on hopes of a global economic recovery, several leading financial gurus are sounding highly pessimistic about 2010 and beyond. At the American Economic Association's annual gathering in Atlanta yesterday, many predicted US GDP will grow less than two per cent per year for the next 10 years.
Throwing more cold water over new year optimism, economics' heaviest hitters, including Nobel Prize winner Paul Krugman, warn that far from entering into a robust period of recovery, the US in 2010 could end up looking like 1937. Then, the Roosevelt administration considered the Great Depression over, removed economic supports and the economy crashed again.
It is important to remember, says Krugman, that "occasional good numbers, signifying nothing... are common even when the economy is, in fact, mired in a prolonged slump." In 1996, statistics in Japan suggested its economy was recovering strongly when, in fact, it was only halfway through its stagflationary decade.
Krugman, an economics professor at Princeton, believes the Obama plan to start withdrawing stimulus mid-year is too early. "Congress should have enacted a second round of stimulus months ago, when it became clear that the slump was going to be deeper and longer than originally expected. The illusory good numbers we're about to see will probably head off any further possibility of action."
Harvard's Ken Rogoff believes many of the largest US banks still need Treasury backing. If the US government ever "credibly" pulled away from its backing of the financial system, then a renewed collapse would likely ensue, Rogoff told the Atlanta conference. Corporate profits, he continued, are dependent on the near-zero cost of borrowing. "There's something of an illusion of profitability," Rogoff reported.
Joseph Stiglitz, Nobel laureate and professor of economics at Columbia University, told the conference he could not see how the US consumer could resume spending aggressively while house prices - the principle source of wealth - remained depressed. "It's very hard to see what will replace it," said Stiglitz. "It's going to take a number of years."
Harvard's Martin Feldstein, former head of the National Bureau of Economic Research, continued the gloomy prognostications, offering that there is unlikely to be any typical post-recession growth surge. "It will be difficult to have a robust recovery while housing and commercial real estate are depressed," he said.
But it was Krugman who - quite typically - came up with the darkest forecast. He foresees a 30 to 40 per cent chance the US will slide back into recession during the second half of the year. "It is not a low probability event," he told Bloomberg. "The chance that we will have growth slowing enough that unemployment ticks up again I would say is better than even."
I see no difference here inn the UK.
And we face talk of cutting deficits, balancing budgets, meeting the needs of bankers and more. All of which is ludicrous. Krugman is right: what we actually face is a risk of a repeat of 1937. And that means more spending is needed. let’s call it a Green New Deal.
George Osborne please note.
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Richard
Your advice could be useful if it saw the picture in the round. But your politically correct blind spots prevent this. And this severely undermines your recommendations.
The indication is that the Green New Deal people have quite a lot of naivitee, or ignorance about the labour situation in this country, or just dont want to talk about certain things. The evidence is that the ‘green jobs’ talk takes no account of some key realities.
The trajectory is, if you look at both internal EU structures and what the EU is committing us to internationally, is the global use of cheapest labour, not just by shifting work to cheaper labour countries (offshoring) – that’s the last decades way – but by cashing in on pay differentials between countries by moving people around.
The ECJ decisions (Viking/Laval/Ruffert/Luxemburg) confirm where the will is in the EU, to support businesses rights to do this, over the rights of workers to defend themselves against havign conditions undermined. It is the model for how the balance of rights in respect of companies from outside the EU will spell out.
A fresh lot of figures this week have again shown that (despite the unevidenced ‘they’ve all gone home’ rhetoric of the govt toady IPPR) jobs to foreign workers here increase while unemployment here rises. That’s pretty stark – especially if you are unemployed.
The point is that the structures that are in place and are being put in place facilitate this happening, so the trajectory of both policy and the resulting numbers, is in one direction – more of both.
‘Spend’ doesnt work if it is in contracts to foreign companies, which is the unrelenting path our ‘liberalisation addiction’ govt takes. Firms then bring in own workers. While this may have the logic of firm efficiency – get the labour as cheap as possible – none of it does anything for public finances – profits leave the country, wages leave the country in remittances, and the welfare bill here is swelled by unemployment.
Where’s the sustainability in that???
But the ‘nice’ people (whose jobs of course are not affected – yet) will never discuss this bucket-with-holes-in-it effect. Even though ‘spend’ policy is absolutely meaningless without addressing it. 😕
The result is that your advice is – – – do you want me to spell it out?
(You might find it useful to look at Prof Hugh Lauder’s research – showing that transnational companies expect to get high skills cheap, by global sourcing – so this is a phenomenon of high and low skills, white and blue collar, work. Cant blame them, or the migrant workers – the problem is the regulatory structures that allow and facilitate it)
Linda
I really think you’re being simplistic
The GND does take realities into account
We can’t change everything overnight
Please don’t blame us for accepting that fact
Richard
PS I always find it encouraging to be attacked from left and right – it means I must be broadly on the right path
[…] can we discern? I am one of a smallish minority that believes 2010 will see a double dip in the recession. That spells huge opportunity for smart practices and the SaaS market. If you […]
We’d be risking a repeat of 1937 if the Federal Reserve decides to sharply constrict the money supply, which is what happeded back then when they forced commercial banks to double their reserve requirements within a year. Stimulus spending makes the most sense when it’s specifically targeted to encouraging the purchases of long-term consumer durables like cars and houses which otherwise suffer huge declines.
Sloshing the cash about willy-nilly has left Japan with public debt in excess of 200% of GDP.
I was a little cynical about the term “double dip” mainly because of its association with charts.
In the real world, however, one thing that will surprise most people is how long businesses (mainly SMEs) can survive a recession by delaying creditor payments, using HMRC as a source of funds by delaying tax payments, etc. but eventually they have no options left.
In my opinion this will cause a “double dip” this year.