[Mb-civic] What Economic Recovery? By James K. Galbraith Salon.com

[Michael Butler]

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    What Economic Recovery?
    By James K. Galbraith
    Salon.com

     Friday 08 October 2004
 The latest job figures show that Bush has bungled the economy as badly as
he has Iraq.

    Only 95,000 payroll jobs were created in September, according to the
Bureau of Labor Statistics on Friday morning - a chilling number released
hours before the second presidential debate. Of these jobs, only 59,000 were
in the private sector. Manufacturing employment declined by 18,000 jobs.
Only 103,000 payroll jobs have been created on average in the past three
months. Only 1.7 million new jobs were created in the past year - Bush's
best year, but worse than in any year under Clinton. We remain almost a
million payroll jobs below where we stood on the day George Bush took
office. In the household survey, 201,000 jobs were lost last month. Truly,
Bush is President No Jobs.

     But the news does not merely confirm that grim narrative about Bush's
presidential term. It also points to an ongoing reality. It's not just that
job growth has been miserable in the past four years. It's that it continues
to be miserable right now and has actually gotten worse since the spring.
Job creation since June is 150,000 short of the minimum required to keep up
with population growth. This isn't a "jobless recovery." It's jobless, yes.
But is it a recovery?

     Sandra Pianalto, president of the Cleveland Federal Reserve Bank,
typifies the view of the uncured optimists. Speaking Thursday, she offered
two possibilities: "As the unemployment data arrives over the next several
months, we may very well see the jobs numbers snap back if confidence in our
economy is restored, economies around the world strengthen, and energy
prices stabilize." And on the other hand? "But it may turn out that the
process of job expansion will take more time ..."

     Ostrich! Take your head out of the sand! There is, let me humbly
suggest, a third possibility. To see what it might be, let's review a little
bit of the evidence from recent days.
    1.       The GDP growth rate peaked a year ago. Since the first blush of
excitement following the cakewalk to Baghdad, growth rates have been sliding
almost all the way: 7.4, 4.2, 4.5, and 3.3 percent. And the second quarter
of 2004 would have been below 3 percent, except for a large buildup in
unsold inventory. That is leading to production cutbacks in the present
quarter.
    2.       Predictably, we now have an actual decline in new orders for
manufactured goods in August. We have an even larger decline in new orders
for durable manufactures. The growth of new home construction in the past
three months, through August, is well below what it had been in the previous
four. The issuance of new construction permits has fallen quite sharply. The
purchasing managers' index has fallen two months running, and in four of the
past six months.
    3.       Personal income in each of the past three months grew at rates
about half of those in each of the previous four. Auto sales declined in
August, as did total retail sales. Chain store sales were up only 1.5
percent - their slowest monthly growth rate all year. New consumer credit
declined in August, and consumer confidence has fallen two months in a row.
    4.       Meanwhile the oil price is above $50, and there is no sign that
it will come down soon. Interest rates are rising, for reasons that remain
carefully obscured, but probably have to do with deep fears and hidden
pressures over the dollar. And the direct spending by government, including
state and local government - remains hobbled by large deficits and financial
crisis.

    What then is the third possibility? It's that the burst of investment we
got following the initial success of the Iraq invasion is petering out, with
little to show and nothing coming online. It's that consumers, who supported
the economy by spending and adding to debt all through the Bush years, are
facing the inevitable and slowing down. It's that nowhere in the world do we
see adequate growth to lift the U.S. economy out of the doldrums. And while
oil prices may stabilize at $50 a barrel, does anyone believe the U.S.
economy will do as well with $50 oil as we did when oil sold for $20 a
barrel?

     As of now, the Federal Reserve is forecasting a 4 percent growth rate
for 2005. The National Association for Business Economists, that
advertisers' auxiliary, is chirping 3.7 percent. These are not very good
growth numbers for an expansion that has never seen a sustained burst of
strong growth. But they still imply the continuation of the trends in the
first half of this year - especially for consumer spending and business
investment. At the moment, given developments in the past three months, the
smart money has to be betting against that.

     And, as Bloomberg News reported yesterday, the smart money is betting
against it. A Business Council survey of 50 corporate chief executives
revealed that they expect economic growth of only 2 percent next year - a
further sharp deceleration compared with this year. Not a single leading
businessman in the sample expected accelerating growth. Even more
surprising, the bosses are bearish even though they expect oil prices to
stabilize and their own profits to pick up. If they are wrong on those
assumptions, well, Katie bar the door.

     Why are the bosses so downbeat? Part of the answer is that they are
executives. Unlike business economists who work for them, they aren't paid
to talk up the market. Another part of the answer is that these gentlemen
are realistic. They know that Team Bush has no plan in place, and none in
prospect, to support growth next year. Nor will Bush, if he wins the
election, have any incentive to develop such a plan. We already know what
Bush's economic priorities are, and strong growth isn't among them.

     And what if the voters throw out Bush in four weeks? Then it will be up
to Kerry and Edwards to cope with the onrushing stagnation. While the false
optimism surrounding Iraq will disappear with Bush and Cheney, false
optimism on the economy has an institutional base, at the Federal Reserve
and among the business economists. That's a problem still to be overcome.

     If Kerry and Edwards are smart - and after two debates does anyone
doubt it? - they will bypass the ostrich colony and the hallelujah choir.
Instead, they'll sit down with the real leaders of business and labor and
get serious about the real situation and what must be done.

  

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