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Wednesday, September 22, 2010

Stimulus Won't Bring Back Old Growth: Two Perspectives

The federal stimulus is doing some good. However, it will not bring us back to the happier economic days of the 1990s and a few of the G.W. Bush years. Two economists offer differing explanations with the same grim conclusion: the economy just ain't what it used to be.

First, Robert Reich says consumers are simply out of gas:

After three decades of flat wages during which almost all the gains of growth have gone to the very top, the middle class no longer has the buying power to keep the economy going. It can’t send more spouses into paid work, can’t work more hours, can’t borrow any more. All the coping mechanisms are exhausted [Robert Reich, "Why No Amount of Fiscal or Monetary Stimulus Will Be Enough, Given How Small A Share of Total Income the Middle Now Receives," Robert Reich's blog, 2010.09.21].

Then Jeffrey Rubin notes that we're out of cheap gas:

What's being overlooked is that last cycle's rate of growth was fueled for the most part with cheap oil--oil was below $30 a barrel for the first half of the period. Even today's oil prices weren't encountered until the last year of growth. That's not incidental to the performance of the world's largest oil-consuming economy, which relies on imports for over half of its 19-million-barrel-a-day requirement.

Feed the US economy cheap oil, and you'll see robust growth rates and a drop in the jobless rate to four-decade lows--no matter who's in the White House. But throw in $147-per-barrel oil, and the US economy stops dead in its tracks [Jeffrey Rubin, "Obama's Fiscal Stimulus No Substitute for Cheap Oil," Huffington Post, 2010.09.21].

Now before you think TransCanada's Keystone pipelines will solve that problem by swelling our supply with Alberta tar sands oil, heed Rubin's reminder that tar sands oil doesn't flow for much less than $100 a barrel.

By this thinking, fiscal stimulus doesn't do much but help us tread water instead of drowning in Depression. Under the concentration of wealth and high oil prices, the economy just can't rebound to the levels of growth necessary to generate the future revenues that would pay down the deficit spending we're using in the current stimulus.

But the answer is not simply to abandon the stimulus and hope everything works itself out. The "work itself out" crowd brought us to a shrinking middle class and continued dependence on oil. To get out of the economic doldrums and beat the deficit, we need to (says Reich) reorganize the economy to expand the middle class again and (says Rubin) kick our addiction to oil in favor of cheaper, cleaner energy sources.


  1. The economy is to big to control. We just have to let it run its business cycle.

    Saying the stimulus bill saved us from a depression is like saying invading Iraq saved us from a nuclear attack by terrorists.

  2. As you note, the stimulus helps us tread water. Problem is that the water ain't going away. [Man, neither is the rain.] In another analogy, it is just kicking the can down the road.

    And there is no magic bullet like the desire to "kick our addiction to oil in favor of cheaper, cleaner energy sources." Wow, there are no cheaper sources on the horizon.

    In the meantime, the federal borrowing saps up the capital that will be needed for business to grow. Just the interest on that debt will soon be unbearable.

    Look out Greece, here we come. Think the EU will bail US out?

  3. America would not qualify to join the E.U.

    We have to much government debt.

  4. Talk about an admission Obama's stimulus and campaign promises were just mist.

    Nice try to manage expectations way down but we were promised something different.

    Sounds alot like "malaise." Sorry Cory but America is more resilient than that if the government would just get out of our way.

  5. Troy, the earth can't afford to have government get out of the way. If government was the problem, corporate independence likely would have ended life on earth by now.

    America is only as powerful as The Peoples' oversight of Syngenta, Monsanto, BP, Bechtel, Koch, BKH, Halliburton, and ConAgra is.


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