Hey, it’s Monday and we all need some good news.
If you can wade through the bad news, the economist Irwin Stelzer, who writes for a variety of publications in the U.S. and U.K., has some.
First the bad news: house sales are abysmal, increased costs for the new healthcare system will arrive at the end of the year, we lack any plan to rein in the debt, and unemployment is so serious that the skills of many long-term unemployed workers are atrophying. Stelzer notes:
Start with the state of the nation’s finances. The federal deficit remains untamed, at 10 percent of GDP, topping the decade’s pre-Obama high of 3.5 percent in 2004. Given the slowing of the recovery, a reasonable argument can be made that what is needed is continued spending, but only if combined with a medium-term plan for bringing the deficit under control. No such plan is on the horizon, in part because of the political paralysis produced by the impending congressional elections, and in part because “kicking the can down the road” – leaving every problem to the next generation of politicians – has become a durable feature of American political life.
The second longer-term problem is the Obama-created imbalance between the private sector that creates wealth and the public sector that depends on that wealth. A recent analysis by USA Today, based on government compensation data, shows that federal government employees earn, on average, twice as much as private sector workers. That’s a result of the recent stagnation in private sector compensation and a steady rise in the pay of public sector workers. This situation was exacerbated earlier this week when Congress decided to spend $26 billion to prevent lay-offs of teachers and other state employees, funded in part by higher taxes on U.S. corporations that do business overseas.
Despite our woes, most economists don’t believe we’re headed for a double-dip recession, and corporations have cash in hand, which they could spend on hiring, if they felt that the country was on the right path. And there is light at the end of the tunnel-it’s called November, and it could bring us some new deficit hawks in Congress. Stelzer notes:
A new Congress will be in place in 2011, and is likely to have more deficit hawks than the existing bunch, many of whom won election by riding on Barack Obama’s coattails, now so frayed that these same politicians are asking him not to come into their districts. If the election returns follow the polls, the probability of the introduction of some sanity into federal fiscal policy will increase, especially if the presidential commission’s post-election report on the deficit can come up with suggestions for a politically acceptable mix of tax increases and spending cuts, perhaps using the new British government’s ratio of £4 of spending cuts for every £1 of tax increases as a guide….
The American economy just might once again prove to be the engine that could.