Re: FW: Jamie Galbraith on jobs and the campaign

[Anthony D'Costa <dcosta@xxxxxxxxxxxxxxxx>]

FYI, I just ran into Jamie Galbraith in the elevator.  He is here today at WIDER in Helsinki.  He gives a seminar this afternoon.  cheers,

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Anthony P. D'Costa, Professor
Comparative International Development
South Asian and International Studies Programs
University of Washington                        Campus Box 358436
1900 Commerce Street
Tacoma, WA 98402, USA

Phone: (253) 692-4462
Fax :  (253) 692-5718
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On Wed, 18 Aug 2004, Devine, James wrote:

> From: James K. Galbraith
>
> from http://www.salon.com/opinion/feature/2004/08/10/jobs/
>
> Our sinking ship
>
> - - - - - - - - - - - -
> By James K. Galbraith
>
> Aug. 10, 2004  |  Aren't you glad you get your economic news from Salon?
> You expected this. You were warned. Unlike almost everyone else, you were
> not "surprised," "shocked" or "stunned" by July's jobless jobs report. Back
> in April, you knew that the jobs surge wouldn't last four years. Four
> months, you read then, might be believable.
>
> For the good ship Recovery, July had a sinking feeling. Early in the month,
> we learned that second-quarter growth had already fallen sharply -- to just
> 3 percent compared with 4.5 percent in the first quarter and about 8
> percent in the third quarter of 2003. Then personal income growth fell to
> 0.2 percent; personal consumption expenditures also fell, by 0.7 percent.
> Housing starts were off 8.2 percent. New-home sales fell 0.8 percent.
> Industrial production fell 0.3 percent. And now we have the July jobs
> report, showing just 32,000 new jobs and a cut of 34,000 in the estimates
> previously released for June.
>
>  Except for July's jobs, all of this had already happened before Alan
> Greenspan started raising interest rates at the end of June. Greenspan and
> his colleagues acted from fear of an overheating expansion and accelerating
> inflation -- or so they said. Now Greenspan says we're in a "soft patch."
> He doesn't explain why he didn't see it coming. He doesn't say why he
> thinks it will soon end. It makes you wonder why we need him.
> Understandably, the stock market is wondering too. Stocks fell by over 300
> points in July. They fell again last week, when the awful jobs news hit
> home.
>
> Meanwhile inflation, which the Federal Reserve claims to be fighting, fell
> by half -- from 0.6 to 0.3 percent monthly in the Consumer Price Index --
> before rates rose. Producer prices actually fell in June. Import and export
> prices were down 0.2 and 0.6 percent, respectively. And the employment cost
> index -- the much-feared barometer of labor power -- was decelerating, from
> 1.1 percent to 0.9 percent.
>
> Business economists reacted to the jobs report as they always do. First,
> they said that no one expected it. Within their community this was largely
> true: Apart from a handful of honorable people, no one paid by Wall Street
> ever expects bad news. (And evidently they don't read Salon.) Second, they
> blamed oil prices, which could be a transitory factor; then again, maybe it
> isn't. Finally, some said they found the slowdown reassuring. Perhaps it
> will lead to a more sustainable path for future economic growth. Ah, yes,
> that's remotely possible. On the other hand, perhaps it will lead to a
> full-fledged slump. The business economists do not know.
>
> "We have turned the corner." So President Bush continues to say. But in
> what direction? The answer rests on Stein's law: "When a trend cannot
> continue it will stop." (Herb Stein was chairman of the Council of Economic
> Advisors under President Nixon.) The fundamental trend has been the debt-
> financed expansion of consumer spending, propelled by the housing bubble,
> and supported by tax refunds, which are now finished.
>
> Have you seen what happened to mortgage rates since the Fed started raising
> rates? They first rose and then fell -- from 6.25 percent to as low as 5.5
> percent for a 30-year fixed rate in the past few days. That means there
> aren't many takers anymore. The household debt engine kept the economy
> moving for four years after the Internet bust, but it seems it's now
> breaking down. It was, in fact, perfectly predictable that it would. I, for
> one, predicted it. We just didn't know when.
>
> If he wins, what will Bush do to spur growth and restore jobs? Clearly, he
> will do nothing. Bush by that point will have no interest in stronger
> economic growth. Indeed, the huge deficits sure to accompany deep
> stagnation will suit the Republican agenda perfectly. Bush will defend his
> past tax cuts by pointing out that no one raises taxes in a recession.
> Instead he will demand spending cuts and the privatization of Social
> Security, citing the budget deficits that he himself deliberately created.
> Greenspan, taking time from monetary mismanagement to launch trial balloons
> for Bush's future fiscal policy, is already making this completely
> illogical case. It's true enough that one shouldn't raise taxes in a slump.
> But one definitely should not cut spending either, nor strike at the last
> shreds of security for working people.
>
> Mercifully, the sagging economy does mean that John Kerry is ever more
> likely to become president and that we therefore won't have to face Bush's
> second term. But what if the soft patch just keeps getting softer? You,
> dear reader, have no credible reason to suppose that it won't. And you've
> got one credible forecaster who says that it will.
>
> That will present President-elect Kerry with a new challenge.
>
> So far, Kerry has followed the common assumption that the recovery will
> continue. Given the herd mentality of the business economists, Kerry could
> not really have done otherwise, even if his advisors had harbored
> suspicions about the recovery's strength.
>
> But this assumption means that Kerry's economic program is built around the
> idea that his main job as president will be to solve important social
> problems like healthcare and energy, while restoring fiscal responsibility
> over time as the economy grows. Job creation is an important Kerry theme.
> But it is fleshed out with relatively modest measures like tax sanctions
> against outsourcing and incentives for the creation of new manufacturing
> jobs. These measures are a supplement to the expected economic expansion,
> but they will not make the expansion happen on their own.
>
> If the good ship Recovery continues to founder, the premise will have to be
> rethought. To save a sinking ship demands actions quite different from
> those one would take merely to sail into port.
>
> The details will have to come later, but the question still bears on
> November's choice. Do you want a skipper who has already given orders to
> stick to a course set three years ago despite its proven failure? Or would
> it be better to have a new captain, to judge the situation with fresh eyes
> and an open mind? One with a record, over the years, of doing exactly that?
>
> What, do you think, would the Navy say?
>
> salon.com
>
> - - - - - - - - - - - -
>
> About the writer
> James K. Galbraith is Salon's economics correspondent. He teaches at the
> Lyndon B. Johnson School of Public Affairs at the University of Texas at
> Austin.
>
>
> ------------------------
> Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine
>