Tuesday, June 8, 2010

What Should Be Happening

Had there been a simple, across the board, tax cut for all Americans and all American companies, and had there been no stimulus package, no credit card reform, no FinReg, no Obamacare, the economy would be chugging along, creating between 500,000 and 1,000,000 jobs a month. That's what normally happens in a recovery in Post World War II USA.

Obama has changed all of that. We now are more like Europe: economic stagnation, slow and virtually non-existent economic growth, burgeoning sovereign debt, suffocating employer mandates, and unsustainable entitlements. Don't expect real economic recovery any time soon. We are in serious economic trouble as a nation, brought on by the worst set of economic policies in the nation's history.

It did not need to be that way. Had Obama played a little more golf and a little less time in front the mirror, the US economy would be well on its way. But, alas, Obama intervened and here we are.

1 comment:

Butch said...

Prof. Burton,
I have two points of query to your post.
1) Obamacare and its effects on the economy aside, I don't see how any of the other factors you mentioned have hindered job creation at all. I assume your argument is that credit card reform (or discussion of it) has contracted consumer credit which, in my estimation, happened months following the crisis as banks realized people would not be able to pay their bills, not after they realized they would be scrutinized more closely. Even if it has contracted further, do you think that a debt fueled spending spree is a positive outcome? As for FinReg, I personally do not see the correlation to job creation at all. Sure, it has put downward pressure on bank stock prices but I don't see how this translates to limit real growth. Now the last of the bunch, stimulus vs. tax cut I don't see all that much of a difference. Assuming the tax cut would increase spending, fueling GDP growth and creating jobs, how would this differ from a stimulus package? Both increase the deficit while adding to GDP. And wouldn't the rising savings rate make the current time even more suited to stimulus over a tax cut?
My second point is, even given perfect economic policy, what makes you think that the U.S. would or should be growing. There is widespread agreement that perverted market incentives are driving an unprecedented misallocation of capital in this country and this is leading to vast under productivity (I would be happy to expand further on this but my point is mainly that companies are being rewarded for being TBTF which not only costs the tax payers trillions but also leads to markets that are out of whack.) I think you have to look long and hard to find a subjective investor with a hyper-bullish outlook. See Soros, Einhorn, Chanos for starters. In my opinion the correction has a long way to go and any long term resurgence is contingent on a close examination and reshuffling of the financial sector (i.e. legislation) .
My last question is a bit unrelated but do you think that it is possible that the fed is manipulating FX markets and, even more, equity markets. And, if so, what do you think the implications of such manipulations are in the long term.