Our New Economy of the 1990’s is no more.
A variety of U.S. inflation indicators have moved up sharply since early in the year, including the producer price index. The index, which measures wholesale costs, has climbed 2% in the past 12 months as of May. That’s up from just 0.9% in February.
A recent article in the Economist discussed some home truths we Americans need to take on board…Now! We have lost, or you might say, we have given away our oomph.
The recovery from the recession of 2008-09 has been the weakest of the post war era. America’s potential growth rate has plummeted: the supply of workers has fallen to an unhealthy low and our productivity has fallen short. Our work labor force has not grown at all and output per hour worked has fallen. The economy is still operating below capacity.
We must boost demand and address the supply side. Our economy needs more workers and faster increases in productivity. The number of working age Americans rose by a mere 0.4% last year. It used to average 1.2%. The proportion of working age Americans in the workforce has fallen from 67% to less than 63%. Blame long years of joblessness and the ageing of the baby boomers.
But there are self-inflicted problems: policies such as our broken immigration system, numbers of available visas has shrunk, deportations have surged and our southern border is becoming impenetrable. Obamacare also shrinks the labor force because it helps people get health care without working. The number of workers on disability has doubled since 1997 to 9 million.
The most powerful way to boost growth is to become more productive. Innovation drives productivity growth. ‘Big Data’ and the ‘internet of things’ suggests innovation is picking up. Yet growth in average worker’s productivity has been slowing down since 2007. Maybe innovation is taking time to get rolling? That’s why they call it ‘disruptive technology’.
Politicians have made things worse. Government could increase public spending on infrastructure; reduce sky-high corporate tax rates; cut the endless sprawl of job-destroying regulations. It is not now, doing any of these things. Even the prospect that they might begin to do something would improve the strength of the recovery. Politicians’ plans have fallen victim to our polarized political environment. Republicans don’t want immigrants, while Democrats fear that supply side will hurt ‘everyman.’
Both side hoover up special interests cash meant to keep anticompetitive regulations in place. It seems that America is doomed to lumber on at an underwhelming pace….sadly.
Zbigniew Brzenzinski said that the United States cannot muster the force or generate the leadership to deal with today’s worldwide turmoil, making us the preeminent power increasingly devoid of strategic will and sense of direction.
Agree or not, he has certainly said in a nutshell what is being said in power circles and mooted on headlines of newspapers and on the internet and in social media around the world.
Even if the latest flare-up in Ukraine turns out to be a non-event in economic terms, Europe’s outlook still looks shaky. In search of fresh clues on a sleepy day for economic news, the market will focus on Italy’s update on new industrial orders. The data is useful for anticipating sales in the manufacturing sector. Recent reports have been encouraging: new factory orders in April climbed 6.2 percent over the year-earlier level—the strongest annual pace in seven months and the eighth consecutive increase (measured in unadjusted terms).
Global economic activity should strengthen in the second half of the year and accelerate in 2015, although momentum could be weaker than expected, IMF chief Christine Lagarde said on Sunday, hinting at a slight cut in the Fund’s growth forecasts.