THE (SURPRISINGLY UPBEAT) VIEW FROM CANADA
I’m not sure this Toronto Star columnist’s assessment is justified, but it’s sharply observed:
U.S. economy may dodge recession bullet
Jun 15, 2008 04:30 AM
There are just 218 days to go until the end of the Bush Administration, and hope of a U.S. economic revival that will spill over into Canada.
You wonder some days if the Republican majority on the U.S. Supreme Court that installed George W. Bush in the White House in 2000 sought to restore Herbert Hoover’s reputation. The hapless 31st U.S. president at least tried to soften the blow of the Great Depression, though his methods were not the radical prescription required to save capitalism from itself.
The Bush administration seems not just powerless but not much interested in the current U.S. economic malaise. True, Bush went along with the demand of a Democratic-controlled Congress for a $168 billion (U.S.) emergency stimulus package. But the $600 cheques cut by the U.S. Treasury that began going out last month have mostly been swallowed up in credit-card paydowns and soaring fuel and food costs. Bush also buckled to Congress’ demand that he halt additions to the U.S. Strategic Petroleum Reserve, which was intended to remove a source of demand and thus curb rising prices. Alas, pump prices are up 23 cents since the president acted.
Bush famously doesn’t read the papers, so his sanguine aspect in delivering an economic pep talk June 6 did not surprise. Bush and his economic advisers seem oblivious to the 28-year low in U.S. consumer confidence, the 441,000 private-sector jobs lost over the past six months, and a financial sector still crippled by the housing crisis and that now denies loans even to the most credit-worthy individuals and companies.
On that particular Friday of Bush’s “fundamentally sound” talk:
- The Dow Jones Industrial Index plunged nearly 400 points;
- Bush’s own Labor Department reported a fifth consecutive month of job losses and that the jobless rate had surged to 5.5 per cent in May, the biggest monthly increase in 22 years;
- And there was a double-digit increase in crude prices.
Bush simply regurgitated old news, including the stimulus package of doubtful efficacy. He called for stepped-up U.S. domestic crude exploration, presumably off the California coast and in the Arctic National Wildlife Refuge (ANWAR), which Bush knows are political non-starters, and perhaps doesn’t know would add little to global reserves even at full production.
And Bush sought for the umpteenth time to have his fiscally ruinous tax cuts skewed to the rich made permanent. The first Harvard MBA president, who most certainly didn’t attend that school on an academic scholarship, might someday in retirement make the connection between the near doubling in the U.S. national debt that resulted from America’s first wartime tax cuts and the steep fall in the greenback, helping drive up the price of U.S.-denominated commodities globally.
Meanwhile, the third and ablest of Bush’s treasury secretaries, Hank Paulson, was characterizing America’s hollowed-out manufacturing economy, concentrated in the midwest states adjoining Central Canada’s own battered manufacturers, as healthy. Paulson is a Sinophile who in that same speech, to the Economic Club of Chicago, denounced as “protectionist” efforts to pressure China to stop manipulating its currency at the expense of metal-benders in Toledo.
“With such apathy from the [Bush] administration and contempt expressed by Paulson for those who differ with him on appropriate tactics, it is small wonder that blue-collar workers and their unions question the efficacy of U.S. trade policy,” writes Forbes columnist Peter Morici, a professor at the University of Maryland and former chief economist at the U.S. International Trade Commission.
The lack of economic stewardship in the capital of our largest trading partner has 57 per cent of Canadian voters expecting a recession of our own over the next six months, according to a poll released last week.
The fretful might be somewhat reassured by selective encouraging data, and by the shift in U.S. political sentiment.
On the data front, the latest Institute for Supply Management (ISM) manufacturing survey, a closely watched index that reliably reflects GDP performance, showed an uptick, from 48.6 to 49.6. More typical of a grand mal recession would be a number like 39.2 (in 1992) or 41 (in the post 9/11 slowdown). And over the past 12 months, U.S. average hourly wages have increased an impressive 3.5 per cent.
While the latest unemployment numbers are discouraging, Corporate America has been laying off tens of thousands of workers, not the hundreds of thousands characteristic of postwar recessions since 1945. And the plungers who bet on economic-prediction futures on Intrade collectively put the chances of a full-blown U.S. recession at just 30 per cent. That’s because many sectors, from technology to health care to tourism, have been adding jobs in recent months.
And the stock market, while still worried about another big-bank implosion along the likes of Citigroup Inc. and Merrill Lynch Inc., is flirting with sustained recovery mode. All bets are off if oil hits $175 a barrel (U.S.) over the summer, eating further into household income, jacking up shipping costs for manufacturers and online retailers, and pretty much grounding the civilian airline industry. But a sense that the market has put most of the bad news behind it, including a housing market expected to finally bottom out sooner than later, means “the puke point has been reached” by traders, Barton Biggs, the former Morgan Stanley Co. chief economist who is more often a bear than a bull, told the Wall Street Journal earlier this month.
While many economists would have preferred that central bankers continue the rate-cutting campaign begun last summer, Wall Street analysts take it as a good sign that the U.S. Federal Reserve Board, the European Central Bank, and, as of last week, the Bank of Canada, have put a freeze on further rate cuts. As a general rule, the stock market posts an average 5 per cent gain over the three months following an end in rate-cutting, and a 12 per cent jump over six months – the psychology being that central bankers have concluded the economy’s health has been sufficiently restored to require no further monetary stimulus.
On the political front, a November win by Barack Obama, backed by a near-certain increase in Democratic numbers in Congress, will likely mark a return of Keynesian-light pump priming to the world’s biggest economy.
Obama would be sure to disappoint traditional liberal Democrats who would open wide the spigots of federal spending. While he doesn’t much advertise it, Obama is a fiscal conservative, unlike the faux skinflints in the White House and Congressional GOP leadership, who’ve run three-digit deficits since Bush came to power.
Still, Obama’s agenda of universal health care, an “Apollo-style” project to develop alternative fuels, and his education reform proposals alone will pump at least $300 billion into the U.S. economy, creating jobs and providing additional income to middle- and working-class Americans who, unlike the affluent beneficiaries of most of Bush’s tax cuts, actually stimulate the economy with their extra trips to Home Depot and Piggly Wiggly. Obama would also stop the $144 billion annual cash drain in Iraq.
Then there’s the $350 billion “infrastructure deficit” in transportation alone that Obama has recently begun to address, last week proposing high-speed commuter rail networks in densely populated corridors where such trains would be commercially viable. Obama’s to-do list already includes replacing aging bridges, highways and airport terminals that either have exceeded their intended lifespan or are handling two and three times the capacity for which they were designed.
Presidential rival John McCain might be preoccupied with a feckless 100-year effort to extract some kind of “victory” from the Iraq misadventure. But he shares Obama’s urgency on confronting climate change, which likely will generate thousands of new “green” jobs in technological research into fuel-efficient vehicles, homes, office buildings and factories.
Again like Obama, McCain is calling for increased federal funding of technology R&D. And McCain has come round to the Congressional Democrats’ demand for more substantive assistance to the estimated 2 million Americans in danger of losing their homes to foreclosure. The homes that already have been foreclosed upon and pock-mark neighbourhoods in the Midwest, Florida and California have driven down the value of neighbouring homes – a loss of home equity that is one of the biggest drags on consumer confidence.
John Authers, investment editor at the U.K. Financial Times, makes the useful point that avoiding an official recession – two or more back-to-back quarters of negative GDP growth – will be little to cheer about if we’re still made to endure a prolonged period of negligible growth.
But it’s still reassuring to find in Authers’ recent assessment that “the chances of the `nightmare scenario’ of an acute [U.S.] recession have receded significantly.”
LOST IN TRANSMISSION . . . NOT SO MUCH
Jim Hayes: “Your reader is confusing total system efficiency (which includes everything – mainly heat loss form burning coal) with transmission efficiency, which is much less. Wind doesn’t have the heat loss inefficiency. High voltage transmission takes only 7.2% on average in the US. I tend to agree with Mr. Pickens [Boone Pickens’ $12 billion Texas wind farm]: the lack of any balanced energy policy is harming the country.”
GO VIRAL – again
Who runs the country – and thus, in no insignificant measure, the world – turns out to matter. It would be nice if the electorate made a well-informed decision.
Quote of the Day
[It would be splendid if someday] economists could manage to get themselves thought of as humble, competent people, on a level with dentists.~John Maynard Keynes
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