by Joe Shea
September 7, 2010
THE FIRE THIS TIME
DUMMERSTON, Vt. -- Last week, the Commerce Department slashed its estimate of the Gross Domestic Product (GDP), reporting that the GDP rose at only a 1.5 percent annual rate in the second quarter, compared to the 2.4 percent annual rate originally predicted.
That news sparked the latest round of fretting about the fear of a "double dip" recession - meaning that the United States may slide back into economic trouble just as the economy has begun to recover.
My response to that is, what recovery?
The Economic Policy Institute (EPI), a left-of-center Washington public policy group, recently released some figures on the so-called recovery. It found that corporate profits from the last quarter of 2007, when the current recession began, to the first quarter of 2010, rose 5.7 percent.
At the same time, after a sharp decline in the fourth quarter of 2008, corporate profits have seen a steady rise ever since. The fear that this rise might stall is what is fueling the talk of a double-dip recession.
During that same period, EPI found that the number of paid jobs has steadily declined and is 5.9 percent lower than it was in the fourth quarter of 2007. Considering how many Americans lost their jobs, or have been forced to accept reduced hours or involuntary furloughs, you would have a hard time making the case that there ever had been an economic recovery.
This leads us back to the original sin of the Obama Administration - its failure to push for a robust and effective economic stimulus plan.
Council of Economic Advisers Chairwoman Christina Romer was one of the few people in the Obama Administration who advocated for a much bigger stimulus. She believed that creating jobs and lowering unemployment as quickly as possible was the best economic strategy. As she said last year, "You don't get your budget deficit under control at a 10 percent unemployment rate."
But President Obama didn't listen to Romer, or the many other economists who wanted a larger stimulus that focused on creating long-term, permanent jobs and rebuilding public infrastructure. Instead, he listened to National Economic Council director Larry Summers, Treasury Secretary Timothy Geithner and budget director Pete Orszag. They're more focused on the federal deficit than on creating jobs.
The final stimulus package ended up being $787 billion, not the $1.2 trillion that Romer reportedly wanted. And while it staved off a complete economic collapse. we are still stuck with an unemployment rate near 10 percent and the prospect of continued high unemployment for several more years.
Not surprisingly, Romer recently resigned her post. As a woman, an academic and one of the few people on the Administration's economic team without a Wall Street background, she did not fit in with the Summers/Geithner view of things.
And so we remain in an economic situation that is still untenable. Three years since the beginning of the current recession, the recovery has not recovered the financial health of most Americans. Consumer confidence is down, while the trade deficit is up. Home sales are down, as are home values, and the long-term outlook is miserable. Economic growth is flattening, while bankruptcies and foreclosures continue to rise.
As economist Paul Krugman wrote last week, "this isn't a recovery, in any sense that matters. And policy makers should be doing everything they can to change that fact."
Policy makers must start taking action to put Americans back to work with another round of stimulus spending that creates long-term jobs and rebuilds our nation's crumbling infrastructure. The price of not doing this will ultimately be far greater than any short-term additions to the federal deficit.
Randolph T. Holhut has been a journalist in New England for more than 30 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at email@example.com.