The economy

Excuses, excuses

A litany of special factors exposes the recovery’s fragility

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Readers' comments




Before the replies become totally polarized between the pro-Mr. Obama and anti-Mr. Obama camps, I have a question.

How come Pres. Obama is being thrown under the bus for the current economic conditions? It's apparently all his fault.

I read comments on WSJ and Bloomberg saying he is a hardcore Marxist-Leninist bent on destroying the US economy (and worse). While the economy IS struggling, and it IS happening on his watch, it strikes me as an incredibly complex problem with no quick solution.

I'd like to posit that Pres. Obama is perhaps guilty only of doing what anybody would do when faced with a problem they don't understand; namely look to the people who's JOB it is to prevent and fix this stuff for direction and advice. These experts would of course be the economists and financiers at the Fed, Mr. Bernanke and Mr. Geithner.

If the economy continues to struggle, shouldn't THOSE men take the lion's share of the blame for being dead wrong, and not the president?


I have to say I am amused by the monthly 'dog ate my homework' excuses for the lack of recovery. I look at it from the perspective of true wealth and its relation to energy. All true wealth production requires energy- other economic activity is moving paper around or creating bubbles. Cheap energy is becoming a thing of the past. In fact, the world seems stagnating on oil output no matter what the price. Follow the energy trail and you will see the economic growth trail. No energy availability, no growth. Using 'energy glasses' you quickly see that the economy will not grow no matter how many stimulative tricks we use.

WT Economist

The U.S. economy has cancer. It also had a heart attack, which was fought at great expense. The cancer remains.

Income has become increasingly concentrated, as those in a position to do so have granted themselves a higher and higher share of income. As a result, most Americans have had lower inflation-adjusted income, at the same point of the business cycle, since 1973. But the whole world depended on selling things to those same Americans.

At first this was papered over by more work, as women entered the workforce, and spending continued to rise. Then by lost old age income, as pensions and health care in retirement were taken away from younger generations (who now approach old age without it). Then by rising debts, debts that funded past consumption rather than income producing assets. Debt without assets, other than a promise by the debtor to be worse off in the future. The housing bubble was the last phase of the debt binge.

Throughout this period, skeptics of the increasing inequality of income had a very strong counterpoint: measured in what people actually consumed, rather than in money, they were better off. But now that is no longer so.

The bottom line is that Americans are collectively 10 percent poorer than they have been living. Or would be if their standard of living didn't have to fall even more to pay off the debts. All the federal government has done by going deeper into debt itself is socialize, for a time, the unsustainable aspects of the U.S. economy, once it could no longer be financed privately.

So given the massive debt overhang, what did The Economist expect? And by the way, doesn't the theory of comparative advantage assume a country has to export in order to pay for imports? What if a country just borrows instead, and then goes broke? That doesn't sound good for the buyer/borrower, or the seller. And there we are.

Timothy D. Naegele

This is a fine article; however, there will be no recovery for many years to come. American housing prices will drop at least another 50 percent during the next five years or so. When the "bottom" is reached finally, there will be bargains galore for those who sit patiently on the sidelines with cash, and wait.

Lots of Americans will lose everything, and the human suffering will be enormous. This will be true of other countries too, including the UK. The worst is yet to come. Yes, there will be "green shoots" or periodic signs that things are improving; however, this was true during the Great Depression of the last century as well, which did not end until the onset of World War II—at the earliest.

Hold on tight. Things will get very ugly.

See (see also the footnotes and comments beneath the article)


"Special Factors"? Or perhaps, more aptly, "Obama Policies"?

Oil is high partly because of the Obama Gulf drilling ban.

Jobs are scarce even after a 1.3 Trillion dollar stimulus (and 2.5 years) because the the money was misspent on infrastructure spending and propping up the state system. Shoving Obamacare down people's gullets at a time when the two other government-run programs are heading into bankruptcy, and while the nation was accruing 1,300 Billion dollar annual deficits, did not help.

Socialist policies simply DO NOT WORK.


@ LarryGo

Wow Larry your giving Obama alot of credit, if Obama is indeed responsible for the "special conditions" then that must mean he has the ability to cause massive earthquakes at will, destabilize entire fractions of the world with social revolutions, and control the weather at will.

And oh noes! Deficits during a recovery?!! Highly visible stimulus spending on infrastructure? Increased government spending during recessions and recovery! Wow all those Keynesians sure had it wrong didn't they?


Obama has done more damage to the U.S. economy than any President in history. Instead of trusting the American people and business and returning the stimulous money to them as Reagan did he has spent/wasted trillion upon trillions growing the size and cost of Government beyond anything in U.S. history. Most of his wasted spending that has left us with Mountains of debt didn't go to pay for infrastructure and create jobs it went into the pockets of public employee unions and other special interests. Now we have nothing to show for all those trillions except 9% UNEMPLOYMENT and and economy about to go back into recession. Obama has easily overtaken Jimmy Carter as the worst President in over 100 years!


What hope is there for a country where economically illiterate politicians and punters blame "socialist" policies for their ills?

Americans pay more in administration costs for their health care than Singaporeans pay in total for their world-class, government-run health care system. Think about that. For the price you pay just to keep clerks, actuaries, receptionists and salesmen in business, Singapore pays its doctors too - and gets it for less.

Do you think Singapore is socialist? Excuse me while I belly-laugh.

There is overwhelming empirical evidence from around the world that government-run health-insurance systems are more efficient. If private enterprise and free markets are always and everywhere the optimal solution, then tell me: why are Americans not agitating for their police, fire service and army to be privatized?

The biggest enemy to America's recovery is the American taliban itself: paranoiac right-wing ideologues whose religious faith in free markets is impervious to scientific evidence or rationality.

Unfortunately, they seem to make up a good slice of the nation.

Gary C

The U.S. isn't alone in it's slow recovery.

The Euro area (+1.9%), Britain (+1.6%) and Japan (-0.2%) all have lower GDP growth forecasts than the +2.6% forecast for the U.S.

(figures form the statistics in this weeks edition of the Economist)


Timothy D. Naegele wrote: Jun 2nd 2011 7:11 GMT


Hold on tight. Things will get very ugly"

I have to agree with you sir. There are possible positive alternatives to this scenario, but they all require some form of leadership. In the US, we are sorely lacking it.


The notion that the temporary ban on drilling in the eastern Gulf has anything to do with the price of gasoline in the short term is a red herring put forward by political opponents of the current administration, who are desparate for issues on which to challenge the President in 2012.

Here is a link to a report from The Center for Strategic & International Studies, which discusses factors affecting oil imports and prices:

Robert North

These growth rates are frightening, since the Budget numbers are based on higher. This means deficit reduction becomes an acute problem, and Bernake had better not add to the mess by thinking he can print more money.


The US is indeed in a bad way. There are high levels of inequality and, putting national spin aside, comparatively low levels of intergenerational class mobility (in fact much worse than the bad monarchist UK). One result is that a small self-replicating elite has enormous power and no real interest in changing the way things are. The political system is dysfunctional and needs a complete rethink (but that will never happen). The priorities of special interests always seem to win (ah ... that elite again). The de-regulation that was at the very heart of the financial crisis will not be fixed (instead Obama is blamed), and neither party has any real desire to get spending and taxes in order. The country is lucky to have so many domestic innovators and decent people, and to be able to draw in talented people from elsewhere. But the country has got to start ignoring the non-existent ghosts and to start dealing with the serious problems at hand. If it doesn't do that the economy will always be exposed, and international political power will dissolve. The US is not the only country to have at least some of these problems - but they matter more in the US case.

One last comment. The insular foolishness of many of the comments here is a problem. People - get a passport, travel a bit, see the world, learn a foreign language.


We need an extra dose of socialism in our economy. Bring back glass-steagall, and have the government seize non-performing loans from the banks.

Everything revolves around credit and the tightness of it. The conventional thinking is that once interest rates are low enough it will spur demands for housing but that is predicated on banks willing to lend. While money supply has increased and there is cheap money, liquidity hasn't gone up correspondingly. Why? Because the banks aren't lending. They are taking our money and gambling it, perhaps speculating on oil and other commodities. That is not the proper function of banks. They have to make loans. This is why despite the vast amount of money the Feds have printed, nothing seems to move. Banks got their bail-out for sins that they (had a central role in) committed but the pain is heaped upon those least well able to do so. Even if we aren't talking about social justice, nationalizing the sick banks is the fastest route to recovery -- go research the Nordic Banking Crisis and use their formula for recovery, it only took them two, maybe three years to recover... unfortunately, Mr. Obama doesn't have enough political capital to see this through.

WT Economist

And by the way, collapsing housing prices are the one way that younger generations can take back some of their lost well being from Generation Greed.

They'll by paid less at work, in the public and private sector, pay higher taxes, and receive fewer public services and benefits. Perhaps not even a public education for their children. But at least housing will be a smaller share of their income.

Did today's seniors really expect younger generations to be able to buy their stocks and bonds at inflated prices given how much less well of they are? Better hope the Chinese are buying.

Joe Marlowe

The Economist writes:

"Last December an agreement between Barack Obama and the Republicans to extend George Bush’s tax cuts and enact new ones led to forecasts of 3% to 4% growth this year. But the new consensus rate of 2.6%, for a recovery now two years old, is barely above America’s long-term potential and scarcely enough to bring unemployment down."


Well what, really did you expect?

Extending the Bush tax cuts sent a horrible message to the markets.
It told the entire world that the financial Peter-Pan Never-Never land of America wasn't even close to being ready to face up to financial reality.

When America is prepared to tell the world it is serious about putting its house in order -

by getting rid of those stupid tax cuts,

by raising the tax on gasoline 5 cents per month for 30 consecutive months to end the tax subsidy to the oil companies through the defense budget, through health care costs, and through productivity losses through traffic congestion;

by raising the retirement age to 68 withing five years, and to 70 within 10 years;

by making significant steps to shift taxation from income to consumption.

- the markets will recognize that responsible adults are back in charge, and that there is genuine determination to put the economy back on solid footing.

Working Man

It is striking that we are in a cycle of hope-disappointment-hand wringing-hope again.

Over the last few months, each hopeful sign is trumpeted and then sadly overtaken by the next set of bad news.

I think the basic problem is a short term outlook. We all want to be out of the woods "today", and this is not just the ordinary person but all the economists, politicians and business "leaders" as well.

Its time to concentrate on the long term grunt work that will restore Western competitiveness and standards of living. This is the intelligent debate we need in forums such as this.

Its also not all bad or dark. The mix of insights we need goes something like this:

- Globalization is successfully making Asia (China, India) rich and this means salaries there are rising. Within a decade we will see much less downward pressure on salaries. This is good long term news for everybody.

- Consumerism is the problem not the solution. Of course we all want to consume, up to a point; but we cannot continue to pin our future on ever more consumption. It eats up the savings that are the basis for a functioning healthy economy. We need a change of attitudes that puts shopping and advertising in a more modest place in our list of priorities. This will support a rebuild of savings.

- Education, especially science & engineering education, is the basis for the future. Education for hard work in general is a good thing. People define themselves and their self worth - based on their education and work capabilities and choices.

- The Deregulation/Regulation debate has become ridiculous. We need some re-regulation (vis. restoring some of the banking regulations) but mostly we need to break up the huge corporates into more manageable chunks, that are NOT too big to fail. Free market competition between these smaller entities will serve us much better than the current Deregulation/Regulation debate.

- Our reliance on oil is a major pain from all angles, whether economic or environmental. We need major investment in oil alternatives.

- The Environmental debate needs a different angle. The current "save the world vs. save the economy" debate merely creates a huge global talking shop. In truth the world is not going to end from "climate change"; yet our lives will be much better if we plant more trees and burn less oil. The debate needs to be brought down to can-do policies which can win support across the spectrum.

The left/right, progressive/conservative debate has become irrelevant to the problems we face. We need to change the angle of looking at the problems.

Audi Man

Solution: Cut military and foreign adventure spending by 50% for the next two years. Take the 1 trillion dollars that would net and use it to wipe out bad mortgages. Then, address debt problems through reasonable measures that don't destroy the past 80 years of human progress.


To my mind, I doubt if there will be good growth in the US, Western Europe and Japanese economies.
Too much of credit build up (maybe with a possible case of round tripping post world war two!) will mean corrective measures to reduce the debt:equity ratio. This would mean a reduction in liquidity and hence a slow down.

Best wishes

Kishore from Mumbai

latin and hellas

O c'mon, any economist worth his weight in salt expected and still expects a VV-shaped (zig-zag) economic profile over the next decade or so, except that such economists usually do not have media power. So what?

Why should a wasting asset like suburban housing be a measure of anything? In the US, a swathe of mediocres wanted to live like the executive class, and the politicians acquiesced (or perhaps vice versa), while the economy on US soil has been in relative decline on a global scale, putting the very suburban model under significant pressure.

So now the US has the VV-shaped (wobbly, zig-zag) economy that it deserves.

It really does not take a genius to figure that out.



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