Get PJ Media on your Apple

Spengler

The Exhausted U.S. Economy, and a Lesson for Republicans

February 4th, 2014 - 4:16 am

shutterstock_150924230

Business won’t invest in brick, mortar, equipment and labor. Part of this is due to the Obama adminstration’s regulatory reign of terror. Part of this is due to Obamacare, which adds to business costs. Part of this is due to secular trends–what Nobel laureate Edmund Phelps calls a “structural slump.” We no longer have high-tech companies: we have instead aging monopolies run by patent lawyers. Nondefense capital goods orders, adjusted for inflation, are running 20% below the 2000 peak and 10% below the level of 2007.

We’ve had a few deceptive signs of activity, to be sure. With the average age of U.S. cars on the road rising to 11.4 years as of last August, a very large number of vehicles must be replaced. Apart from student loans, the only category of consumer credit that expanded during 2013 was automobile loans. The replacement wave appears to be over and car sales have slumped.

Last year’s 30% runup in the S&P 500 was founded on the firm belief that things would get better in the future as they always had in the past. Can the stock market be so wrong? Twice in my lifetime, the stock market has given ridiculously wrong signals: during the tech bubble of the 1990s and the mortgage bubble of the 2000s. The Fed’s unprecedented provision of liquidity cheered the stock market, but it did not persuade lenders to lend or borrowers to borrow. The growth rate in total bank credit is close to zero, something we have seen before only in recession periods.

FRED Graph

The Fed has insisted throughout that the treatment was working and the patient was getting better. Americans know better: in late January, 74% of respondents to a Fox News poll said the country still was in recession.

Republicans have a once-in-a-generation opportunity to roar back to power given the miserable performance of the economy on Obama’s watch. But they still could fall on their faces.

The problem is NOT government spending, contrary to the well-meaning obsession of the Tea Party. That will BECOME the problem a decade or two from now. The problem now is obstacles to investment: the highest corporate tax rate in the world, onerous regulation, the crazyquilt uncertainty of Obamacare. America needs aggressive tax cuts and regulatory rollback. It also needs to spend more on infrastructure, which is becoming a major obstacle to growth. It needs to spend more on R&D, particularly on cutting-edge military R&D. The way to do this, I’ve argued for years, is to emulate Roosevelt’s alphabet-soup federal agencies and put unemployed Americans to work repairing infrastructure at $20 an hour, rather than paying $50 an hour to the construction unions. That’s heresy from a free-marketeer like me, but it makes economic sense and will drive the Democrats crazy.

If Republicans stage more cliffhangers around the budget, they may yet snatch defeat out of the jaws of victory. They should talk about nothing but growth and jobs. Many Republican analysts claimed that Obama just got lucky in 2012, that the economy was turning up in any event and the incumbent got the credit. That is self-consoling nonsense: the Republicans lost because Mitt Romney came across like a silver-spoon princeling, and because Americans (with good reason) blamed the Republicans as much as the Democrats for the economic mess. They chose economic dependency over enterprise, because enterprise–in the form of the Internet and housing bubbles–hadn’t gotten them anywhere. We Republicans have a lot of explaining to do and we had better get down to it.

*****

image illustration courtesy shutterstock / ollyy

<- Prev  Page 2 of 2   View as Single Page

Comments are closed.

Top Rated Comments   
Really? Sorry, missed the schoolmarm rules leaflet.
24 weeks ago
24 weeks ago Link To Comment
You'd have a very minor point if anything Obama ever said could be believed.
24 weeks ago
24 weeks ago Link To Comment
Behold, the marriage of Keynes and Marx.

When the EPA intentionally infuses anti-capitalism into ENERGY and the IRS assaults free market liberty, the arrow for freedom points down, down and further down.
24 weeks ago
24 weeks ago Link To Comment
All Comments   (66)
All Comments   (66)
Sort: Newest Oldest Top Rated
The USA has produced roughly an extra 1 milllion barrels @ day for the last three years. This country is on track to produce roughly an extra 1 million barrels @ day in each of 2014 and 2015 according to the IEA. There's billions of investments that go along with natural gas and oil.

I'm not so sure that -- even if other sectors of the economy are exhausted -- the USA could go into a serious recession --because the capital flows are being reoriented as we speak by the oil patch in a way that reverses the events of the 1970's.
24 weeks ago
24 weeks ago Link To Comment
Mr. Goldman,
So you are surprised and exasperated that the US economy appears worn out and quite possibly in a condition of permanent recession?
It astounds me that you and many who agree with you keep saying that the US is a "proposition" nation, seemingly without any consideration of where that "proposition" came from. The proposition is a white European idea, particularly protestant Anglo, swamp the nation with people who have no connection whatsoever to that philosophy, or indeed any sympathy or understanding of the principles enshrined in that "proposition" and you get what we now have. I would classify our current politics, and our now inevitable future, not as "capitalist" or "social-democratic" but typically Peronist. What we have is crony capitalism, nepotism and corruption typical of the catholic South/Central American states to our south. Even your favorite immigrants, those of the indian Sub-Continent are in no way sympathetic to the "proposition" you say this nation espouses. It is you and your free trading, open borders, unlimited immigration cohorts who have won. Well, congratulations, but remember, be careful what you wish for because you might just get it, and you have got it, unfortunately so have the rest of us who realized years ago what a disaster this unlimited immigration and "free trade" globalization would actually be.
It is a question often asked; how could those who imported 3 million African slaves have been so shortsighted, how could they not have realized what a catastrophe they were creating for this nation. Well you and your fellow travelers are the modern day equivalent of those early greedy fools. You have supported the importation of that which has essentially destroyed the United States.
Well done!
24 weeks ago
24 weeks ago Link To Comment
This is a very good article, but I think you left out one major issue: The expansion of the supply of labor at the bottom since the 1965 Immigration Act. I'm all in favor of reducing regulation and lowering corporate taxes to encourage investment. But until we stop third world immigrants from driving down wages at the bottom, we won't get a recovery for the average American worker, no matter what we do.
24 weeks ago
24 weeks ago Link To Comment
Reasons we have few jobs and little capital investment: "the Obama adminstration’s regulatory reign of terror. . . Obamacare, which adds to business costs. . .secular trends."

WTF? Has it escaped the author's attention that we have been exporting our capital investment, along with factories, jobs, and middle-class prosperity, ever since the original NAFTA? That we have exported over 6,000,000 jobs, and over 55,000 factories? And that the trend continues, with additional demands for more of the same suicidal policy that got us here?

I know it's politically incorrect to point out that we are impoverishing ourselves to prove the validity of the "Free Trade" ideology. But don't pretend you don't even see the problem with the Emperor's New Clothes. That won't make the nakedness go away.

Pravda has called our economic policy a "produce in China, sell in the West" policy. That's not going to balance, is it? And it's not going to produce jobs (in this country, anyway). When the former Commies can see reality better than we do, we've got trouble.
24 weeks ago
24 weeks ago Link To Comment
Love this; numbers don't lie, but the pundits do.
Monday on the radio, they were STILL blaming the weather for this. . . Americans are the most gullible people on earth. The government schools are obviously doing the job that government is paying them to do: Prevent people from developing any critical thinking skills.
24 weeks ago
24 weeks ago Link To Comment
Mr. Goldman, good to see you back in fine form, lots of important stats and such. A couple of points: as I recall Romney-Ryan actually talked a lot about jobs and growth. It didn't work---it looks like Obama's vote tally was down but Romney lost because lots of the base just stayed home; point being, w/o posing the philosophical question, of how we've gone wrong/exposing the radicalization of the Democrats, a jobs-focus probably won't work. Second, the GOP is now the Loyal Opposition, emphasis on loyal. Their big initiative now is to import another 15 million low-skill Mexicans, in hope of maybe gaining a slightly smaller sliver of the Hispanic vote. This must certainly encourage the base even further. I think you miss something critical here. Washington is, increasingly and obviously, utterly hopeless---I'm looking more and more at the Convention of States approach to reining things in. Not much hope there, but at least we will have tried.
24 weeks ago
24 weeks ago Link To Comment
If only Jack Kemp were still alive...Romney's gratuitous 47% remark was a killer, as was featuring the CEO of Staples as poster-boy for job creation (Staples jobs amount to opening crates with stuff from China). If we can't win on growth, we're cooked.
24 weeks ago
24 weeks ago Link To Comment
How about something really simple, that doesn't require the next president to emulate FDR?

It's real simple: ENFORCE THE CONSTITUTION AND DO IT WITH CONVICTION!

We're not living in America until we store our foundational rule of law, which is now gone. See the "president's" self-declared Enabling Act, i.e. the "State of the Union."
24 weeks ago
24 weeks ago Link To Comment
"...blamed the Republicans as much as the Democrats for the economic mess."
---------------------------------------

Hmm - seems Pravda is doing their job well - a stellar performance at that. Not so long ago when I'd talk to my liberal buddies about the economy they would point out- how well the stock market was doing. I would kindly remind them that during the Bush days I would mention how well the stock market was doing they would say it didn't mean a thing. Funny how they don't want to talk to me about 'those days' any more - and any mention of the poor performing economy on my part elicits no mention of the stock market. I'm puzzled. I thought they were proud of Barry's 'effect' on the economy.

I remember during the Bush years (employment at 5.6% or so) and Pravda kept lamenting that those figures were erroneous - seems there were some people that couldn't find full time employment. They harped on this point day after day - hour after hour (I listen to a lot of radio!). Now? Never is heard a disparaging word - ♫♫♫ do-dah -♫♫♫ - do-dah ♫♫♫ .

But hey! Pravda isn't biased - right?



24 weeks ago
24 weeks ago Link To Comment
The 2008 crash happened on Bush's watch and he was a deer in the headlights throughout the bailout. Pravda didn't invent that.
24 weeks ago
24 weeks ago Link To Comment
The posters responding to this article have better ideas than any elected officials. The only job of government should be consumer protection. Anything past that is an effort to solicit a bribe in one form or another.
24 weeks ago
24 weeks ago Link To Comment
There's an alternative: sell the infrastructure to the private sector and have them charge tolls everywhere in return for rebuilding it. That's not a bad idea in theory but it will get you hanged from a lamppost.
24 weeks ago
24 weeks ago Link To Comment
In the summer of 2013 the State of Washington relaxed their onerous environmental studies and mitigation requirements to rebuild a collapsed I-5 bridge over the Skagit River. What would have taken a year under the old rules, was done in two months and under budget. The environment's okay, too. A classic example of what government regulation is doing to productivity in this country.

Thousands of bridges are in need of upgrading and repair. As Spengler points out this is what could put many people back to work. And it could be done much quicker and cheaper if the environmental regs are relaxed.
24 weeks ago
24 weeks ago Link To Comment
1 2 3 4 Next View All