State of the Economy
by Ian Welsh
2010 August 23
The key issues are that States and municipalities are essentially bankrupt, and that corporations aren’t hiring. Corporations aren’t hiring because their profits are fine, and because they don’t see where the sustained growth would come from. States and municipalities are having income issues because the incomes of median taxpayers have not recovered and the number of employed is not increasing (ignore the “unemployment rate”, what matters is how many people are employed and that hasn’t recovered worth a damn.) Since States and municipalities have limited ability to borrow and can’t print money, in both cases, unlike the Feds, this means they must cut or raise taxes and in general States are ideologically opposed to raising taxes and municipalities don’t feel they can. Housing prices remain depressed, which is the main source of money for municipalities.
Since there is no chance of a real stimulus being passed (and if there was, Obama would do it badly, like he did the last one) and since Obama refuses to spend the TARP money on the economy until it’s his reelection on the line rather than Congressional Dems, and since there’s no obvious source of new jobs in the US economy, I see little reason to expect the US economy to recover. Even if the world economy somehow does, it will route around the US, since the US is a high cost domicile and there is no good reason to produce in the US. In the old days you produced in the US because that was where the next big tech boom occured, the skills were there, and you needed in. With the deliberate strangling of innovation in the US due to the oligopolization of the economy, the next tech boom (if there is one) is unlikely to occur in the US.
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None of this was necessary, but Obama chose to not just ask for too little money in his stimulus, but spent the money very badly even outside of the hugely useless tax cuts. The money did not give the economy an obvious medium term direction: either a huge telecom build-out or an energy and conservation build-out, and the huge bailouts for financial firms created a more concentrated financial sector full of zombie banks with no intention to lend money. The failure to create a workable cram down on housing prices which also rescued underwater home owners has left housing prices underwater and credit markets still sclerotic. With the House either going Republican in the fall, or if it remains Democratic with the Democratic margin being controlled by hard-core Blue Dogs, even if Obama did buy a clue, there is little chance that a decent restructuring stimulus bill could get through Congress and the actions of regulatory bodies like the FCC, the Justice department, as well as Obama’s implicit recognition of the health oligopoly, make it clear that his administration has no intention of challenging, let alone dismantling, the oligopolies which are draining the life blood of the US polity.
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