We Ask: When Will the Pain Go Away?
NEWSWEEK's Business Roundtable experts assess the damage—and offer solutions.
The big risk to the future is political, not economic
Larry Lindsey, former governor of the Federal Reserve and former economic adviser to President George W. Bush
The American economy has been the engine of global growth for the last quarter century. That has been a conscious policy choice by administrations of both parties as well as the objective of the nonpartisan Federal Reserve. We did so not only for our own benefit, but also as a means of promoting growth and stability in the emerging parts of the world, particularly in Asia. This has probably been the most successful use of America's "soft power" in our history.
No policy is without its costs and trade-offs. To achieve our ends we relied on a robust consumer sector with unprecedented access to easy and cheap credit. Homeownership rates, the number of cars per driver and the ownership of a whole range of consumer durables hit new records. But many consumers became overextended, and now American growth has hit a temporary limit. Consumer retrenchment is likely to go on for a while, probably through most of 2009, producing an extended period of slow growth and quite possibly a recession.
Although the developing world has come a long way, it is still quite dependent on American growth and will inevitably slow. After three years of record-setting global growth of 5 percent or higher, the global economy will likely slow to around 3 percent growth. Then global growth will pick up again.
The biggest risk to our future comes from politics, not economics. Politicians seeking to exploit voter unease are calling for significant changes in the bipartisan policies that have produced a quarter century of global prosperity. Demands for a rollback in free trade are particularly troubling, but so are calls for a return to punitive tax rates, significantly enhanced regulation and a retreat from America's commitment to underwriting global security. Whatever our current problems, reversing an approach that produced victory in the cold war and cemented nearly two decades of peace and prosperity is simply not a prudent course.
Bad for the Republicans, good for the Democrats
Robert Reich, secretary of Labor under Bill Clinton, and author of "Supercapitalism: The Transformation of Business, Democracy, and Everyday Life"
I think the reports we've been hearing that the United States will rebound in the second half of this year are overoptimistic. I don't know where the demand to create economic growth will come from. Exports can't fill the gap, and I worry that the perfect storm of rising fuel and food prices and declining home prices has put consumers in a bind. Real median incomes are lower than they were in 2000, and consumer debt is higher. People can't get money out of their homes anymore.
Consumer confidence is dropping, and the concern has been growing for years. It's a deeper phenomenon than the short-term issues. Americans work more hours than the Europeans or the Japanese, and have gone deep into debt. I don't think recovery from this recession will be vigorous.
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Member Comments
Posted By: melpol @ 10/12/2008 4:04:52 PM
Comment: No finagling at the top alone will restore the American economy. 75 percent of the economy is driven by the spending of ordinary consumers and they are frightened. Call it PTS and it will not be cured easily. The distribution of free booze and Prozac will jerk start spending again. That is the only quick fix that is possible.
Posted By: melpol @ 10/10/2008 12:59:40 PM
Comment: There is no doubt that if there is a deep and long recession homes will have to be shared. No humane government would allow a large segment of the unemployed to go homeless while others have empty rooms. Those that refused to share their space would be seen as criminals and punished by eviction. Our lives would be difficult but eventually the economy would return to normal and we all would get back our privacy.
There would be no time to choose a compatible roommate in times of an emergency.The problems of sharing a home with a stranger can be severe. The distribution of food and sex would have to be negotiated fairly. Fortunately the arrangement will be temporary. But in some cases strangers will become compatible and will be strangers no more. Faith,Hope and Charity can open all doors.
Posted By: cani77 @ 09/27/2008 12:28:46 AM
Comment: In a few weeks we will make a choice that will decide our future.
I follow an economist named Bob Proctor. He has called the top and bottom of every market crash since the 70s correctly.
Also, he perfectly predicted the current real estate market meltdown and the picture he paints about what will happen in the next couple years
is terrifying.He thinks it will be worse then the great depression.
The banks in the U.S. are going under one after the other. Countrywide the largest morgage bank in the world,Bear Stearns, Lehman Brothers and Merrill Lynch which are 3 out of the top 5 wall street firms. Also, Fanny and Freddy Mae which hold 50 percent of the home loans in the United States.
The government took them over because they are essentially bankrupt.If they didn't the entire financially system would virtually shut down, the stock market would crash and we would suffer beyond what any of us have seen before.
McCain just like Bush " doesn't understand the economy".
That not just my opinion its his own words. Not only does he not understand how to fix it but he does not understand exactly what is broken.
It is no surprise that he doesn't. The people that make up these securities use complex mathematical models very few people understand.
Bush and McCain both can take the credit for this mess since they helped deregulate the laws that were protecting us.
Bush's economic advisor Phil Graham wrote the deregulation bill that allowed banks to take huge risks with all of our future.
Now, Phil Graham is the head of McCain's economic policy.He is also McCain's choice for the next secretary of the treasury.
No one in this country can afford for that to happen. The last time Bush met with his economic advisors was in March. He either didn't care or didn't realize that anything was wrong. Phil Graham had the guts to say that we are in a mental recession after he helped create the worst economy meltdown in our lifetime.
It will take the best and brightest minds in the world to get us out of this nightmare. As bad as Bush has done, McCain would be
even more destructive because things are in much worse shape. The next president will not inherit a surplus like Bush did but a tanking economy and a 11,600,000,000,000 (trillion) dollars deficit. Most of it Bush created and it will take decades to pay it back.
If you do what you have always done then you will get what you have always got.
When it comes to policy Bush and McCain are the same 90 percent of the time.
So why are the polls even close then ?
The chairman of McCains campaign recently said that people don't vote on issues they vote on a personality composite. Which means he is trying to sell you personality instead of results.
He believes people will vote against their own interests.
Let's teach him we are smarter than that .
Hold them accountable NOW! while it will still help.
Elect Obama Biden 2008