Friday, August 5, 2011

More evidence that nonsense supply-side mantras like "corporate tax cuts" aren't going to move the economy

Clearly the problem driving a weak recovery - in serious danger of a "double-dip" - isn't that corporations don't have enough capital to make the sorely needed investments in jobs:

Source: BEA

Economist Jared Bernstein:
How is this picture consistent with an economy and job market hovering at stall speed? A lot of these firms are able to sell into (and create jobs in) foreign, emerging markets, where growth has been reliably solid in recent years. Others have found ways to squeeze productivity gains out of their incumbent workforce, able to meet current levels of weak demand without adding workers.
The only thing that will get these guys off of their piles of cash is a steady increase in domestic demand - and I don't see that coming soon without the government doing a major jump-start. An infrastructure bank that could begin to green-light immediate repairs and large-scale new initiatives - something that both the labor unions and the Chamber of Commerce have come to agree on - is the only politically feasible proposal in this direction I've seen to date.

Double-Dippin'...and where do we go from what feels like "nowhere"?

This morning we have a banquet of bad news, triggered by a dive in the markets, days after the end of a debt ceiling hostage drama was expected to restore "confidence."

Floyd Norris at the New York Times says what no one wants to hear:
It has been three decades since the United States suffered a recession that followed on the heels of the previous one. But it could be happening again. The unrelenting negative economic news of the past two weeks has painted a picture of a United States economy that fell further and recovered less than we had thought.
On the heels of the Obama White House's former Council of Economic Advisors' head Larry Summers giving us a one-in-three chance of a double dip into another full recession, Business Week offers this bit of gloom from President Reagan's old CEA chief, along with worries of our current Fed chairman:
“This economy is really balanced on the edge,” Harvard University economist Martin Feldstein said in a Bloomberg TV interview on Aug. 2. “There’s now a 50 percent chance that we could slide into a new recession.” Even Federal Reserve Chairman Ben Bernanke has referred in speeches to the risk of an economic stall...
Ezra Klein looks behind the Dow Jones drop, at the much more alarming weaknesses not just in our economy but in our politics - and an inability to conduct an even minimally informed public conversation on the problems we face:
... the Dow Jones isn’t diving because spending has risen, deficits have grown or stimulus policy has changed. It’s diving because of forces Washington can’t control, and in many cases, doesn’t understand very well. How many members of Congress do you think could give a coherent account of what has happened to oil or steel prices over the last three years? Or what’s happening in the Eurozone? Or to the yuan?

A dramatic gap has opened between the economy as Washington sees it -- and wants to intervene in it -- and the economy that actually exists.