Friday, August 27, 2010

Prospects for a US Recovery

Here is a nice short opinion piece in the NY Times by Mark Thoma that reviews where the recovery of the US economy could come from:
The bad news for recovery seems to be nonstop lately, with new home sales, which were at a record low in July, and durable goods orders, which came in far below expectations, continuing the trend. What does this say about the prospects for recovery?

It’s useful to break down the economy into four major sectors — households, businesses, government, and the foreign sector — and consider how each will affect both long-run and short-run prospects for growth.
Sadly he sees no sign in the near term of any recovery being led by households, businesses, or the foreign sector. That's why a federal stimulus package is so important. A new one. A bigger one. Without it, the US will have a "lost decade" of deflationary stagnation:
If government can provide the bridge across our short-run problems, then the other sectors can take over and generate long-run growth, and the hope is that the growth will be as robust as before the recent crash. But there’s no guarantee that hope will be realized.
To put it bleakly, Obama has shown no awareness of any of the above. He keeps talking "recovery" as if it were underway. But it isn't.

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