Tag Archives: Economics

Conditions for Economic Recovery

On Le Monde’s site, an article was posted concerning the outlook for France’s economic recovery according to Prof. Patrick Artus: Les conditions d’une vraie reprise ne sont pas réunies. Reading the article, a similar argument can be made for the US, with the same conclusion: non, pas encore.

Much like us, France saw a 4th quarter uptick in growth, and much like us it was largely technical, related primarily to inventory depletion. In the US, businesses replaced inventory, but at a slower pace.  Another factor was higher productivity without higher wages.

Prof. Artus explains that in the 70s and 80s, economic cycles were usually linked to inflation – interest rates rose, business activity and consumer consumption slowed, inflation came down, the economy rebounded.  Boom.

Since then, inflation has been tamed, and today’s economic crises are tied more to asset bubbles and excessive indebtedness.  Under these circs., when the economy stumbles (the bubble pops or deficits start to matter), banks stop lending, businesses spending contracts and households consumption gives way to higher savings rates.

According to Prof. Artus, under an expansionist economic policy, the economy’s rebound will require lending to restart, businesses to start investing and households to start spending. (Se what he did there?  Just reverse the progression.  Economists! What can’t they figure out?!  Engineers are said to solve problems we didn’t know we had with solutions we can’t understand.  Can the same be said of economists?  Discuss.)  After some time, salaries will have to rise (remember, this is a Frenchman talking about France. L’union fait la force, l’oignon fait la soupe!).  Prof. Artus doesn’t think France has reached that point, and the idea that a rebound is underway, based on what is required under his economic model, is clearly a thought properly classified as ‘wrong.’

That very same argument can be made of the US, and, in a bit of a two-fer, this argument also helps explain my generally low regard of economists.  My initial responses to this argument are summed up thusly:  “Duh. Really?  You get paid for these insights?”

I admit, not the most professional response, but valid nonetheless.  If one requires evidence that the credit spigot has reopened and loans are flowing, business investment is up and on the rise, household consumption is climbing at the expense of savings, then one would be hard press to claim 4Q09 results in France or the US evidence of the economy’s rebound.  No, if those are your requirements, you will not see the rebound even if you are an optimist or a scientist*!  Under Patrick’s restrictions, you won’t see it unless you look to the past, because you’ll be very much in the midst of the recovery, or even well past it’s juicy bits, and likely to find the first part of the ‘buy low, sell high’ mantra no long available to the investor in you.

It would be more informative to point out where an economy is in its cycle based on the various measures of a model like Patrick’s, which suggests my criticisms may have more to do with the medium (newspapers, the Web) than the message.  In a classroom, I’m almost positive this would be explored to a more meaningful depth and presented in a more informative manner.  So, Prof. Artus, my beef isn’t with you, your model or your abilities, au contraire, but rather in the surfeit of credence given to sloppy economic writing in today’s media.

* A Pessimist sees the glass as half empty
An Optimist sees the glass as half full
A Scientist sees the glass as full of air and water


‘Trickle-Up’ Economics – A Policy Whose Time Has Come? (Yeah, like 20 years ago.)

Couple of Swells

Couple of swells

Continuing my spittle-filled rant about the US economy, I’m going to change gears in this post and approach the subject not from the side of what’s wrong, but rather what can be done to make things right.

In a previous post, I noted that the US economy is driven by middle class consumption, so policy makers that push supply-side economic policies to de-hobotize our economy seem very hopeful, at best, that they can motivate the middle by giving to the top.  What is the fucking goal here? Motivate the middle class through envy to work harder for a few extra scraps to be tossed their way?  I mean, sure that shit hasn’t worked since, what, 1982, but hey, that’s no reason to stop trying! Right? Guys?

Supply-side economics seems predicated on the quaint notion that eventually the drippings will drizzle down the chins of America’s swellegant set to sate the thirst and fuel the consumption of the nation’s remaining 95%.  Meanwhile, as we wait and the temperature falls, don’t be surprised to hear:  “Jeeves! I’ve a discomforting chill in the marrow. I say, throw another hobo on the fire, there’s a good man.”  That is, unless you are the hobo.

Seems a quicker path would be to directly pass a goodish chunk of The Splurge funds directly to the remaining 95% and let them have a go at it (consuming that is.)  And by directly, I mean the provision of cash, not just the reduction of taxes.    Quite frankly, the recent economic nightmare the lower and middle class is living these days will leave most hesitant to shove cash out the door when the bank account is running low and the bills piling high.

Not only is America’s economic engine fueled by middle-class consumption, it is also dependent on small businesses to employ the bulk of its citizens – not on the Cokes, GMs and Goldman Sachs of the world. Those two facts alone bolster the argument that the key to America’s economic recovery, its pace and depth, resides with the middle class. Specifically, the middle class must have two key resources (money and confidence) if America is going to pull itself (sooner rather than later) out of this deep-ass economic hole it has dug for itself.  At the moment, we seem to be unkindly short of both but stuffed to the gills with debt and uncertainty.  (Ruh roh!)  Any plan that is to work must provide us the former two will riding us of the latter two.  To put forth anything less would be un-American (or very elitist).  Where do you stand?

Before you answer, just note that October’s consumer confidence reading dropped to a record low of 38.0 from September’s revised reading of 61.4.  Expectations were for a reading of 51.5.  Discuss .

Bloomberg columnits John F. Wasik recently posted an opinion piece on ‘trickle up’ economics that address the role of small businesses in the context of the presidential election.  Defs worth a read.