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The tortoise economy

Robert Reich, professor of public policy | September 10, 2010

Word from the twelve Federal Reserve Banks, summarized in the Fed’s so-called ”Beige Book,” shows the economy slowing in July and August.


But the Fed is quick to point out the economy overall is still growing — even though it’s growing more slowly than in the spring.

Can we have a moment of realism here, please?

In 2008 and 2009 the economy fell into the deepest hole it’s been in since the Great Depression. Since then we’ve been struggling to get out. We’re failing big time.

After a typical recession, growth surges until the economy reemerges from whatever hole it fell into and returns to its normal growth path. Usually that surge isn’t difficult to accomplish once the upswing begins because all the assets the economy needs to get back to its old path are readily available — lots of people who have been laid off or have come into the job market and been unable to find work, unused office and retail space, factories and equipment that had been idled. After the economy returns to normal and almost all these people and physical assets are back to work, growth slows to its normal pace.

But this time it’s not happening that way. More than two and a half years after the Great Recession began, many months after we hit bottom and when in a normal “recovery” we’d expect growth to surge, the opposite is happening. Growth is slowing.

We may or may not fall into another hole, but a so-called “double dip” isn’t really the worry. The worry is we’re not getting out of the giant hole we fell into. Growth is slowing when it should be surging. Think of a tortoise trying to get out of a deep ravine, who’s just begun to scale the wall when he gets tired and goes to sleep.

As I keep saying, this isn’t your ordinary business cycle. But we’re debating fiscal policy as if it were.

Democrats and Republicans are battling over whether the Bush tax cuts should be extended to the richest 2.7 percent of Americans next year. They shouldn’t be, of course. The rich don’t spend nearly as much of their incomes as everyone else, and the $36 billion windfall they’d otherwise get could be better spent saving the jobs of teachers, fire fighters, and police officers who do spend almost all their incomes.

Yet even if Democrats win this one, the tortoise might wake up and move several inches up the wall before falling asleep again. Even if Congress were to go further and enact Obama’s $50 billion infrastructure bank — another proposal in the right direction — the tortoise might move another few inches.

The underlying problem is structural, not cyclical. There will be no return to normal because normal got us into the hole in the first place. And the normal kind of prescriptions can’t possibly get us out. Until the economy is restructured so more Americans share in its gains, the economy won’t make many gains. We’ll be forever trying to scale a wall that can’t be, because the vast majority of Americans lack the purchasing power to move upward.

If you’ll permit me a commercial, I explain all this in detail — as well as what must be done — in AFTERSHOCK: The Next Economy and America’s Future, which will be out in two weeks from Knopf.

Cross-posted from Robert Reich’s blog.

Comments to “The tortoise economy

  1. Are there any economists out there?
    Houses cost let say 20,000 in 1975 here in Ca.Craftsmen made 9.25 per hr.Houses have risen in cost to on and average 350,000 so,to achieve the American dream how much do you have to make to afford the life style of home ownership.Lets do some simple math,divide 20,000 into 350,000 and you get 17.5 times—WOW—big increase did wages follow suit?”NO” they did not for the middle class,if they had wages would have risen 17.5 times to match inflation however;professional had a huge increase in earning power Doctors,Lawyers,Bankers,Mortgage brokers,Real estate sales people,the list goes on to ad nauseum.To include Professors who are now making six figures, could you explain to us how the middle class folks slipped through the cracks.

  2. Kurt:
    I love your sarcasm,more should view the fantasy of importunate wealth as a way to help lower classes via trickle down economics of the propagandists.Why not try it again,Reagan was the great communicator of lies,under his twisted concepts of equality.Thats it Dan give all those purveyors of ethics,morality common good the benefit of the dought.Wait for a better time to reenter the market when it is nere collapse,to justify risk.

  3. p.s. to Dan

    The 20,000 Americans with incomes above $50,000,000 per year get a fair deal. In return for $10,000,000 per year more on average they pay the IRS, to they extent they rehire Americans, they get $10,000,000 on average in FICA tax forgiveness. How can there be a complaint?

  4. I hope I can give some realistic certainty to Dan.
    Here is the way it will work out for the unemployed and for the rich, if they finally realize they need each other.

    Accepting that our current stimulus ($700B over 3 years = 1.5% of GDP) nowhere compares to the 1940 successful depression combat of 14%, what meager steps can we at least take politically now? I resubmit that a FICA tax holiday of $215B in return for business’ rehiring at least 5,400,000 Americans (I’ve done the math) would immediately change the demand curve for the better. Think how many foreclosures are unemployment based. Think how much our demand problem is causally related to housing and thus to unemployment. Another $200B + stimulus expended dollar for dollar on jobs is peanuts compared to what we have spent on recovery and bailouts so far. Let’s make this last bailout of the “left out” American worker and put this demand depression immediately and finally behind us with a $200B + FICA tax holiday that will immediately reduce unemployment to 6%.

    And if the objection is “THE DEFICIT”, well maybe the income bracket of $50M + per year and above will just have to be taxed a little heavier (the 20,000 Americans in that category will just have to each chip in 2 month’s income per year more ($10,000,000), out of their $50M + each year) to save the country and save at least 15M workers who are stranded in this economic emergency. After all, running up further deficits, as those conservative wealthy tell us, is unwise.

    This coming week the Senate is going to consider a FICA tax holiday for each job that employers bring back from overseas. This is an insufficient incentive. We must bite the bullet and agree that industry is out to lunch. The only way to make the incentive work is if a FICA tax holiday is given for every current 13 workers an employer has in return for his hiring one new worker. In other words, the new hires payroll must be paid for in full by the FICA tax holiday, or business will undoubtedly not cooperate in any meaningful way. $215B in nationwide FICA tax forgiveness to employers equals the full payroll cost of 5,400,000 working Americans. Let’s make a real try, an FDR 1930’s try, Then let’s see how much we have done for demand.

  5. Hogwash! I’m in the business of helping businesses grow their business. What I’m hearing from a whole lot of these “rich, fat cat, hoarding corporate owners” is that they have the money to hire and expand but they have no idea what is coming with the Obama tax hikes. They don’t know if they are going to have to send their reserves to the IRS or what!

    Uncertainty and the general “down with the rich” sentiment that is coming from Washington and people like Greg in the comment above is slowing growth. If you want to see the economy grow… Of course you should take away the resources of the wealthy and redistribute it to the “less fortunate” so they can buy more beer and fishing boats and shop at Walmart. Then all those out of a job need to ask those folks coming out of Walmart with their new sports watches for a job. I’m sure that will cure our financial woes!

    I don’t know where people get the idea that the wealthy have too much, but if these people keep voting like minded people into office, we will all be in the same fishing boat drinking our beer.

  6. Local newspapers – used to be the lifeblood of the local economy. They told us about new businesses or reminded us about old businesses, announced sales and invigorated the community with tales of success.
    The local Press humanized our society by keeping us connected to our neighbors, made us proud of our ‘hometown’ and encouraged us to support our local businesses.
    I am not against the internet which has opened our eyes to the world,
    -Think global but act local.

  7. You are so right. Meanwhile while large corporations hoard their cash, small firms are hitting the wall.
    Thanks to the 24/7 hyper media, the non-reading public is being herded toward more of the worse policies.

    What can be done? Or do we have to have a total crash before waking up?

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