Radio commentary, July 2, 2011
[I’ve gotten out of the habit of posting these. Here’s last week’s — this week’s to come later today.]
U.S. economic slowdown • the depressing debt ceiling debate
The mostly weak tone of U.S. economic data continues, following the precedent of disappointment set by the torpid employment report for May. First-time claims for unemployment insurance fell only slightly last week, and the four-week average remains quite high—not at recession levels, but at stalling recovery levels. And the number of people continuing to draw benefits, which had been in a long downtrend, stalled in April, and is now flat. At least it’s not rising, but if the recovery weren’t losing oomph, it would have extended its decline from its still-high levels.
Meanwhile, the news from the housing market—whose recovery is probably a prerequisite to any decent broad economic recovery—continues to be ugly, with sales depressed and prices continuing to fall. (It’s weird when declining prices for one of life’s essentials, shelter, is considered bad news, but that’s they way our housing market works.) There are about five different measures of house prices in common use, each of which sings a different variation on the same basic theme: after stabilizing early last year, house prices began falling again late in the year. There are still too many vacant houses and houses in foreclosure hanging over the market to allow prices to recover. Since just about every economic recovery in modern times has been led by housing, this is not good news.
Neither is the continued erosion of the Economic Cycles Research Institute’s weekly leading index, designed to forecast turns in the economy several months out. It’s still positive, but for every one of the last ten months, at a less positive rate than the month before.
As I’ve said before, I don’t think we’re headed back into recession—though that’s always possible. Instead, I think we’re experiencing a textbook post-bubble economy, lifeless, unable to get out of its own ways. There are too many structural pathologies—inequality, debt, hollowing out (though the strength in manufacturing is surprising, and hopeful for the longer term)—that are unacknowledged and unaddressed. All anyone can do now is talk about cutting government spending—local, state, and federal.
The melodrama over the debt ceiling in DC is seriously depressing. It’s a fact that if the Treasury were unable to make an interest payment on its bonds, all hell would break loose in the financial markets. Not only are Treasury securities considered the safest in the world, a reputation that would be destroyed by default, but there are many complex arrangements that depend on the flow of Treasury interest to remain solvent. Any disruption of that would cause interest rates to rise dramatically, and derail what little recovery we’ve had. Republicans seem willing to risk all that because they see the threat as a way to cut the budget viciously—it’s a form of blackmail, really. And the threat is directed against someone, Barack Obama, who is famous for pre-emptive compromise.
But it may be wrong to see Obama as simply weak. He would almost certainly gain politically by saying publicly, loudly and frequently, that the Republican plan is a way of forcing cuts to immensely successful programs like Medicare and Social Security that could not past muster without the threat of a crisis. But maybe he’s really not opposed to such cuts. He may be hoping for more moderate ones than Paul Ryan is suggesting, but not opposed to the cuts in principle. When people consistently behave in ways that look irrational, you may just be missing the rationale behind their behavior.