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Lollipop Economics 101
Whether a recession occurs—a determination made by academic economists, usually after the fact—probably won't affect most people. Differences in forecasts are fairly small. Economist Richard Berner of Morgan Stanley expects a "mild and short" recession, with peak unemployment of 5.6 percent or 5.7 percent in early 2009. Economist David Wyss of Standard & Poor's anticipates slower growth, but no recession; he, too, foresees peak unemployment of 5.6 percent. That's the average, he says, of the past 50 years. This would be a setback, but not a disaster.
Only time and patience will cure some economic problems. Though few mention it, rising inflation is a threat. For the year ending in November, consumer prices increased 4.3 percent; the annual rate for the past three months is 5.6 percent. Raw material prices have soared. In early 2006, copper sold for $4,900 a metric ton, reports economist John Mothersole of Global Insight. By late 2007, the price was $7,300. Slower economic growth—even a recession—would dampen prices and incipient inflationary psychology.
The housing predicament is similar. Inventories of unsold homes are high; monthly sales are low. What basic economics teaches is that when there's a big gap between supply and demand, prices adjust. That has to happen in housing. Home prices must drop further, so that houses become more affordable and revive both sales and new construction. It's true that falling home prices will probably lead to more mortgage losses and foreclosures. But the more the adjustment is delayed, the longer the housing market will remain moribund.
In an election year, politicians inevitably try to show their sensitivity to voters' economic worries. A slowing economy does suggest a few common-sense and responsible steps: for instance, lengthening unemployment benefits from the standard 26 weeks to 39 weeks. But a big exercise in pump-priming, which is all that a "stimulus" package is, would be justified only if the economy deteriorated considerably more.
It's not possible, or desirable, to correct every twist in the business cycle. A "stimulus package" now would represent the use of government funds for campaign advertising—to show voters how "caring" their politicians are. The great danger is that once proposed in a modest lollipop form, any plan would quickly be expanded to include many other tax breaks and spending increases, the fiscal equivalents of candy bars and peppermint sticks. This would bloat its costs and confuse the public about the long-term budget problem, which is, not surprisingly, just the opposite: to control the huge spending increases of baby boomers' retirement.
© 2008
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Member Comments
Posted By: sayitnow @ 01/24/2008 4:20:50 PM
Comment: Lets take a look at the stocks, bonds, options, that our senators and reps own.
Why is oil conglomerations not paying tax on billions of dollars? How much stock is held by our preisdent,vice president,senators and reps? higher dividends if not taxed.
The same holds true for banks and investments. why can't we negotiate drug prices?
Where was all the special committees (receive pay for being on these committees) that are supposed to oversee and intervene when
the banking and mortage companies were encourageing and pushing these ARMS with high
instrest.Who in the congress holds bank stocks ,or who receives money (donations?) from these same banks and mortage,insurance,drug,pharmaceutical,gaints? With this money rolling in what makes any one of us think they will act on our behalf. With this box of cookies they possess all of us will be lucky to receive a crumb.
Reality of our lifes for the people who are supposed to represent us has ceased to exsist.
They are used to a reciprocal relationship with their contributors. vote them out and they will become a "CONSULTANT" for one of their contributory supporters.
You cannot believe the figures published for unemployment, inflation,and most of the information that comes from your washington political sources. They want to sound good ,strong,righteous.
Why ? you ask yourself? When did things get so bad?
When you did not write,telephone,fax,or take any interest in what they OUR GOVERMENT was doing? When you did not look into who was the money behind the people who have the greastest effect on you and your loved ones life ,live or die, jobs ,schools, mediical needs,etc.
So Cheney wants his surveillance law passed (this is the same one that they took to the hospital to very sick man to sign. HE SAID NO!!!!
in six months they want to give some of your tax money back , Now do you know how much you must earn before Social security stops being deducted from your check?
What is wrong with a freeze on foreclosures'?
What is wrong with tax on the rich?
What is wrong with taxing the billions of profit dollars of oil companies.
what is wrong with the president,vice president remembering that they were present to put their hand on the bible and sworn to protect the consitutuion it was as president not king.
Why are we Americans paying for the Iraqi so called goverment,Where are the oil revenues that was supposed to take care of various costs. How many dollars would that save if we did not pay for the so called goverment as our president and company promised? Why is there no accounting for billions of dollars that no one seems to know where they went or why? Check with the gemeral accounting office GAO.gov .
There are many ways for billions of our dollars to be put into the tax system,and many ways to stop our dollars flowing out
Posted By: mastaire @ 01/18/2008 12:51:48 PM
Comment: Why doesn't Bush just shutup!
Posted By: hushus @ 01/16/2008 1:37:10 PM
Comment: What gives American economy edge is dollar's position in the world economy as the major currency which other currencies are anchored and commodities are priced. As a result, people use dollar all over the world. Not only US economy is very big but the World economy is so big that no matter how much stimulus is proposed fundamentally it won't have any significant effect on the weak dollar, trade deficit of US and unreasonable debt of US which in turn causes high oil prices inflation, high cost for money borrowing. Americans enjoyed for a long time no cost borrowing by pushing their currency for others to buy but there is so many dollars out there with no real backing of products and service. Nobody wants it anymore but still people cannot do without dollar because still there is no alternative for it. So inevitable just lingers for a long time until Americans get that they have been mislead in to very bad situation and they stop buying stuff and try to save their future which will cause a collapse of financial system worldwide.