U.S. Economy Improving, but Tough Road Ahead
Robert Blecker, professor of economics and chair of the Department of Economics in AU’s College of Arts and Sciences, is the coauthor of Fundamentals of U.S. Foreign Trade Policy: Economics, Politics, Laws, and Issues, the author of Taming Global Finance: A Better Architecture for Growth and Equity, and editor of U.S. Trade Policy and Global Growth. His articles have appeared in many refereed journals.
Blecker talked with American Today about the state of the economy, the effectiveness of stimulus and bailout efforts, and what lies ahead in the coming year.
American Today: It’s been a rough year for the economy, but aren’t we in much better shape now than we were a year ago?
Blecker: Officially, the recession ended in the middle of 2009 in the narrow technical sense. That’s when output as measured by Gross Domestic Product and other indicators stopped falling and started increasing. However, both GDP and other indicators have been increasing very slowly since that time. It’s a year and a half and we’re not really back to where we were at the previous peak of the economy at the end of 2007. So we’ve dug quite a big hole. Unemployment remains [high—about 9.4 percent in December 2010, according to the Bureau of Labor Statistics], and there’s something like 8 million people who have lost their jobs since the recession started. There’s probably another few million who have come out of high school or college or graduate school looking for jobs and haven’t found them. So we’re in a really deep hole in terms of employment.
. . . The real problem is that demand has been so sluggish. Consumers were very heavily in debt. They were counting on rising values of their homes and their other assets to finance consumption, and both of those things have ground to a halt.
AT: How effective has the federal stimulus policy been?
Blecker: My view is that we had a mild stimulus. It did some good but not as much as it could have because it was too small. If you look at China, which weathered the crisis probably better than any other major country, their stimulus was on the order of 12 percent of the Gross Domestic Product. Our stimulus was maybe 3 percent at most, and there was a lot less to the stimulus than [initially] appeared. First of all it was 700-some billion dollars but that was spread over two years or more for some of the spending. So it’s maybe 300 billion or so a year. That was stimulus by the federal government, but it was offset by tax increases and spending cuts at the state and local level which are still going on. So the net impact in terms of total government spending was fairly minimal, and there were some tricks in the stimulus bill like the extension of AMT—alternative minimum tax relief—which everybody expected Congress to do anyway; so it really wasn’t [part of] a new stimulus.
. . . [But] the combined efforts of the Treasury and the Fed, as unpopular as they may be, and in some cases clunky and badly done as they were—especially TARP [Troubled Asset Relief Program] —I think they prevented a Great Depression. We could be facing 20 percent unemployment instead of 9-point-something if we had the kind of financial meltdown we had in the 1929 to 1933 period.
AT: What about the bailouts?
Blecker: As unpopular as they were they did get lending going again to some extent. They got the financial system unfrozen because after Lehman Brothers collapsed everybody was afraid to do anything with anyone in the financial system. So now while they’re not rushing to lend, they’re at least doing normal business and it is possible to get loans that you could not get in the fall of ’08.
AT: Where do you see things going in the coming year?
Blecker: It’s always hard to predict the future. If we project out from what’s happening now we see probably continued slow growth of output and very, very slow inching back of employment in the private sector. It’s just going to be slow and gradual and it’s going to take a long time at this rate. It does seem that the risk of a double-dip recession, a second recession, is off the table right now. That’s the relatively good news. But we just don’t see the kind of rapid recovery that we had in periods like 1983 and 1984.