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It’s been nearly three years since the recession’s official end, and the economy remains mired somewhere between stall speed and escape velocity. Nobody can quite figure out how to keep it away from the former and get it past the latter. The usual prescriptions aren’t working.
What we’ve got on our hands is a Pinocchio recovery, a puppet that wants to be a real boy, but remains just a wooden toy that moves only when somebody’s pulling the strings. It needs massive amounts of stimulus — government spending, cheap interest rates, tax holidays, tax breaks on equipment purchases, and so on – to move it.
Look at fourth-quarter GDP. It rose by $143 billion (seasonally adjusted.) The U.S. federal government deficit for those three months was $294 billion. We just saw yet another example across the pond, in the U.K., of what happens when the government stops spending. Rigid austerity right now is counterproductive.
But this isn’t an argument in favor of government spending. For one thing, that’s an ideological debate, and we have far too many of them for our own good these days. Besides, there’s a real problem with the stimulus theory. The idea is the spending holds the line, short-term, while the economy heals. We’re three years into this recovery, and we haven’t healed. To borrow Thoreau’s phrase, the government is at best a wooden gun. A cheap prop. Government spending on its own can’t create a thriving economy.
We don’t seem to have any answers right now, which is why there’s this feeling of drift in the nation. The liberals’ ideas are all from the 1930s, the conservatives’ ideas are all from the 1890s. Neither batch of ideologues has a plan for the problems of today.
The economy’s problems haven’t gone away, because the problems didn’t start with the Panic of 2008. The panic merely uncovered the mold that had been spreading for decades.
The bottom line is there has been no natural, organic recovery. The problems that plagued us haven’t gone away. We are still addicted to debt because our salaries have stagnated for a generation. It was always a bit of a fantasy to think we could recover from a crash in a couple of years, as if nothing had happened
There has to be some fundamental thing, something that sparks that “success mood,” in Robert Shiller’s words, and drives the economy. It hasn’t made its appearance on the stage yet. We can’t force it. But we need to keep an eye out for it and jump on it when it comes. Housing is dead. Forget about it. Mobile computing is hot, but it doesn’t create a lot of jobs. The energy boom has some potential. It creates good-paying jobs. Will it produce enough, and in the right geographies?
Pinocchio came to life through the particular magic of a story. But we’re not in a fairy tale here. These are people real lives. We need to find that fundamental thing, jump on it and get the country going again. There’s no guarantee it’s out there, but one always seems to come along. Let’s hope it comes soon.
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Very well said – scary, but true. Sooner or later people will figure out that most of the world (ex AAPL) still looks pretty ugly and US equities will likely face retest the 2011 lows or lower … after all many European indices are already there or lower and the only difference between us and them is that our budget and debt skeletons are still happily hiding in the closet while theirs are wide open on display.
MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what's happening in the markets. Lead writer Steven Russolillo spearheads the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to marketbeat@wsj.com.
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