Ever-astute super-success Mortimer Zuckerman, publisher of US News & World Report, offers a stark picture of the US economy plus his prescription to fix it. (My link has a USN&WR online glitch in it; you may need to click on "cancel print job" after it comes up, and then print from your File menu.) MZ paints in detail the stark jobs landscape, not conveyed adequately by looking at the spotlighted unemployment rate. His prescription to fix it includes targeted infrastructure projects plus pro-investment & pro-skilled immigrant policies. But most compelling is his summary of the fix we now find ourselves in:
In summary, we have overleveraged households weighed down by debt and worried about layoffs, thus curtailing their spending. We have businesses unwilling to hire until they are certain that the recovery is solid. They are unlikely to invest in new machinery and plants when they are using less of the nation's industrial capacity than they have at any time since the end of World War II.
What this means is that larger-than-typical head winds face two of the three normal engines of recovery: consumption and residential investment. These usually make up about 4.5 percent of the growth in the gross domestic product in the first year of a recovery. This represents a subtraction on the order of three quarters of a trillion dollars annually from consumer spending. Given how high our fiscal deficits are, it is hard to imagine how consumers will be in any position to make up the difference.
Rather than pumping more cash willy-nilly into a fragile economy, the government will have to focus on its next big task: drawing up credible plans for bringing bloated budget deficits under control without triggering another downturn. The public understands this.
The prospect, therefore, is sluggish GDP growth; employment gains that are too slow to prevent further increases in the unemployment rate; slowing and probably falling inflation; a Federal Reserve policy that may be forced to unravel some of the Fed's unconventional monetary stimulus but still will keep the fed funds rate at its current near-zero level; banks more willing to lend, but only gradually; and firms probably still very reluctant to hire vigorously.
George Will notes the 17.3 percent underemployment rate--far more significant than the official 10 percent rate--and adds data on real estate plus recovery numbers from past recessions, giving force to the argument that rapid recovery is simply not in the cards today. Further force comes from a WSJ editorial this morning, spotlighting six of the worst veteran liberal leaders of the House, whose animus towards and ignorance of the private sector help drive market-destructive policies embedded in legislation they produce.
Bottom Line. All administrations use Rosy Scenario economic growth numbers to drive political budgetary exigencies. But today's true economic prospects make Team Obama's edition of Rosy the Rosiest ever.
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