Summary: The US economy is one of the strongest of the developed nations, which has allowed us to avoid reforming our decayed political system, our mad unprofitable empire, and our insane military spending. The cheering over today’s employment report — showing continued slow growth — reflects this optimism. It’s delusional, looking at the effect while ignoring the cause. A broader perspective shows a darker picture.
US Public debt:
- $5.1 trillion at the recession’s start in December 2007
- $10.1 trillion one year ago
- Now $11.3 trillion
So the Federal government has borrowed $6.2 trillion since the downturn began. It’s borrowed $1.2 trillion during the past year, over 8% of GDP. For comparison, a 3% deficit is high — and a 4% deficit is critical.
Let’s ignore the secondary question about the wisdom of this spending, and consider its effect. The combination of fiscal and monetary policy — both dialed into the red For Emergency Only zone — has produced 4.5 years of slow growth following the crash.
That shows the true state of the US economy: weak. Years in the intensive care ward have produced only a semblance of good health. The vital signs are strong, but only due to the drugs and mechanical assistance. That’s why the Fed began QE3 instead of starting to unplug the patient.
To boost morale our leaders lie to us about this simple truth. Being foolish and passive, we eagerly believe what we’re told. While this maintains spending and investment, this false security saps any willingness to make the deeper reforms we desperately need. This is the unanticipated side-effect of the otherwise-successful (in a narrow sense) economic treatment.
Update: for more about the latest jobs report
- Robert Waldmann (Department of Economics, Tor Vergata University of Rome))notes the Employment/Population ratio is back to the level of Reagan’s “morning in America” level
- “Constant-demography Employment (Wonkish But Relevant)“, Paul Krugman, New York Times, 6 October 2012
- A look at the coming Holiday hiring season by David Rosenberg, Chief Economist of Gluskin Sheff via Zero Hedge