With politicians and talking heads the only ones involved in the debate on fixing the economy, they tend to drown out the real experts. Here are a couple of articles from some real experts!
The first from Laura D’Andrea Tyson, a professor at the University of California, Berkeley, who discusses how to recover from a balance-sheet recession.
Professor Tyson says there is worries that we will slip into a double dip recession because of the jobs crisis.
To develop cures to ease the jobs crisis, its causes must be diagnosed correctly. The fundamental cause is the drastic breakdown in private-sector demand brought on by the 2008 financial crisis that burst the debt-financed housing and spending boom preceding it.
This boom displayed all of the features of a major financial crisis in the making — asset price inflation, rising leverage, a large current account deficit and slowing growth. And the recession that followed had all of the features of what Richard Koo called a “balance-sheet” recession — a sharp decline in output and employment caused by a collapse of demand resulting from vast wealth destruction and painful de-leveraging by the private sector.
Next is where she calls out the republican party for economic incompetence:
Consumption is the major driver of aggregate demand in the United States economy, and since early 2008 it has grown at an average rate of 0.5 percent in real terms. Not since before World War II has consumption growth been this weak for such an extended period.
Despite misleading claims by Republican members of Congress and by Republican candidates on the presidential campaign trail that the size of government, regulation and excessive taxation have caused the jobs problem, business surveys repeatedly have identified weak demand as the primary constraint on job creation.
As one small-business owner told The Los Angeles Times, “If you don’t have the demand, you don’t hire the people.” And the majority of economists agree on this diagnosis. They also agree that the recovery from a balance-sheet recession can be agonizingly long, with significantly slower growth and a significantly higher unemployment rate for at least a decade.
Until the politicians are ready to start putting actual economic policy first and politics second we are in for a long ride!
O yeah the perpetual government shrinking is not helping(hear that tea party)?
In other recoveries during the last 50 years, public-sector employment increased. This time it is falling: during the last year the private sector added 1.8 million jobs while the public sector cut 550,000.
What should be done to get us out of this recession? The same that that has worked throughout our history:
What should policy makers do to combat the large and lingering job losses that result from a financial crisis and balance-sheet recession? Mr. Koo, whose book on Japan’s experience should be required reading for members of Congress, showed that when the private sector is curtailing spending, fiscal stimulus to increase growth and reduce unemployment is the most effective way to reduce the private-sector debt overhang choking private spending.
When the Japanese government tried fiscal consolidation to slow the growth of government debt in response to International Monetary Fund advice in 1997, the results were economic contraction and an increase in the government deficit. In contrast, when the Japanese government increased government spending, the pace of recovery strengthened and the deficit as a share of gross domestic product declined.
Of course, we should not be defeatist about creating jobs. Anyone who cares knows how to do it.
At the top of the list should be a jobs programme for young people that would be modelled on the Civilian Conservation Corps. There are many parts of the country where the unemployment rate for young people is 40-50%. These young people have no realistic prospect of getting jobs. Giving them work at or near the minimum wage, cleaning up streets, parks and abandoned buildings in their neighbourhood, can make a big difference in their lives – and considerably enhance those localities.
A more far-reaching policy would be to promote work-sharing as an alternative to layoffs. The money that is paid out in unemployment insurance could instead subsidise shortened work hours. If just 10% of the people who lose their jobs each month could be retained with this policy, it would be create another 2.4m jobs a year. This policy has been so successful in Germany that its unemployment rate is now lower than before the downturn even though its growth has been almost the same as ours.
Finally, getting the dollar down is the most important long-term job creation policy. If we managed to get back towards balanced trade, it would lead to almost 6m manufacturing jobs.