Recent Data Confirms Earlier Posts

Posted: September 10, 2010 in Economy, Obama, Tea Party, U.S. Politics
Tags: , , , ,

A few graphs came to my attention recently which confirm arguments I made in recent posts.  One is on consumer borrowing.  The chart below shows  that U.S. consumers are spending a lot less than they were a few years ago.  This is one reason why the economy is not recovering as fast as it could.

Consumer Borrowing as of 9/10/10

The other data is on the steep industrial decline that began in the 1950s.  It supports the argument I made about how much of the Tea Party anger and desire to “restore” America is a plea for a time period that has largely disappeared and not likely to return any time soon, at least not in the form that existed before.

The current recession is the beginning of a deep structural change in the economy, a shift as radical as the one that led to the period of industrial growth in the early decades of the 20th century.  As Matt Bai has argued, it looks like we are on the verge of entering “into a digitized and globally competitive world, and that transformation was threatening to displace the middle class and erode the country’s economic dominance in the decades ahead.”

Manufacturing Decline in the U.S.

The Tea Party and Republican opposition to Obama’s policies will hamper and stall a process that requires government intervention to lead and subsidize the transition to this new economy.  We have more than a burgeoning government debt to worry about if the opposition has their way.  Clearly, the infrastructure of this emerging economy requires a tremendous expansion of broadband internet, alternative energy, fast inter-city train service, an upgrading of the electrical grid, and more.  Without those, there is little likelihood that the private market, by itself, can do enough to keep the U.S. competitive and in the forefront of this permanent economic transformation.

Impact of Govt Taxes and Spending on the Economy

Moreover, as the side chart makes clear, tax cuts do have a stimulus effect on the economy but it is relatively small compared to other government actions.  In particular, middle class tax cuts, economic transfers through food stamps and unemployment, as well as government spending on infrastructure are much more likely to have a positive effect on the economy.  That so many Americans and policiticans are so wrong about taxes and spending makes you terribly sad or as Professor Edward D. Kleinbard, former chief of staff of the bipartisan Joint Committee on Taxation, now a law professor at the University of Southern California stated, “The debate has become so unrealistic it makes you want to scream.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s