Is 2012 1937-revisited? Is the US being UKized?: "Blame Budget Austerity for Poor GDP Growth – Economic Intelligence usnews.com"

American real estate investors, brokers, agents, property managers, and their firms need to promote sound economic policies and practices for the United States.

From Eileen Appelbaum, a senior economist at the Center for Economic and Policy Research:

As the Obama administration's 2009 stimulus continues to wind down, the effects on the US economy are showing up in the economic data. Coming out of a steep recession, the economy should be experiencing robust output, or GDP, growth. Output growth of 3 percent in the fourth quarter of 2011 helped bring the unemployment rate down. However, the government's announcement that output growth fell to 2.2 percent in the first quarter of 2012 should give policy makers pause. The economy needs to grow by at least 2.5 percent just to keep unemployment from rising. Thus this latest figure on GDP growth does not auger well for the job market, which has seen a steady rise over the last few weeks in initial unemployment claims. In the face of weaker demand, Investment spending by business is slowing. Cutbacks in government spending at the federal as well as state and local levels are already hurting GDP growth.

Eileen lays out in a very succinct manner just exactly what is going wrong right now. Read the whole of her short article and realize that there is an ideological battle going on over which direction the nation should take: Blame Budget Austerity for Poor GDP Growth – Economic Intelligence usnews.com.

Our object is not to editorialize but rather to be as pragmatic as possible. It would behoove all to understand the following, which is borrowed from the Wikipedia:

Recession of 1937–1938

From Wikipedia, the free encyclopedia

Unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted.

The Recession of 1937–1938 was a temporary reversal of the economic recovery from the Great Depression in the United States.

Contents

Background

By the spring of 1937, production, profits, and wages had regained their 1929 levels. Unemployment remained high, but it was considerably lower than the 25% rate seen in 1933. In June 1937, some of Roosevelt’s advisors urged spending cuts to balance the budget. WPA rolls were drastically cut and PWA projects were slowed to a standstill.[1] The American economy took a sharp downturn in mid-1937, lasting for 13 months through most of 1938. Industrial production declined almost 30 percent and production of durable goods fell even faster.

Unemployment jumped from 14.3% in 1937 to 19.0% in 1938.[2] Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels.[3] Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. In most sectors, hourly earnings continued to rise throughout the recession, which partly compensated for the reduction in the number of hours worked. As unemployment rose, consumers’ expenditures declined, leading to further cutbacks in production.

Response

Manufacturing employment in the United States from 1920 to 1940.

The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold in the anti-trust division of the U.S. Department of Justice to act, but Arnold was not effective. In February 1938, Congress passed a new AAA bill which authorized crop loans, crop insurance against natural disasters, and large subsidies to farmers who cut back production. On April 2, Roosevelt sent a new large-scale spending program to Congress, and received $3.75 billion which was split among PWA, WPA, and various relief agencies.[4] Other appropriations raised the total to $5 billion in the spring of 1938, after which the economy recovered.

Some economists believed that banking reforms already enacted were insufficient and that further reforms were warranted. Many suggestions put forward by Chicago economists in two 1933 memoranda that came to be known as the Chicago plan, were resurrected and recirculated in a 1939 draft proposal entitled A Program for Monetary Reform.

Recovery

Although the American economy recovered in mid-1938, employment did not regain the 1937 level until the United States entered World War II in late 1941. Personal income in 1939 was almost at 1919 levels in aggregate, but not per capita. The farm population had fallen 5%, but farm output was up 19% in 1939.

Employment in private sector factories regained the levels reached in 1929 and 1937, but did not exceed them until the onset of the war, and manufacturing employment leaped from 11 million in 1940 to just over 18 million in 1943. Productivity steadily increased, and output in 1942 was well above the levels of both 1929 and 1937.

Interpretations

Economists disagree about the causes of this downturn. Keynesian economists assign blame to cuts in federal spending and increases in taxes at the insistence of the US Treasury,[5] while monetarists, most notably Milton Friedman, assign blame to the Federal Reserve’s tightening of the money supply in 1936 and 1937.[6] Austrian school economist Johnathan Catalan assigns blame to the relatively large expansion of the money supply from 1933 to 1937. He also notes that the money supply did not tighten until after the recession began.[7]

Wikipedia contributors, “Recession of 1937–1938,” Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/w/index.php?titl e=Recession_of_1937%E2%80%931938&oldid=4 88367872 (accessed April 29, 2012).

Eileen Appelbaum also writes as follows”

The United Kingdom, like the United States and unlike Greece, has its own currency. The U.K., like the United States and unlike Greece, has its own central bank and control over its own monetary policy. There is no chance that the United States (or the United Kingdom) can end up like Greece. There is, however, the distinct possibility that the United States can end up like the United Kingdom.

[…]

The wounds to the U.K. economy are self-imposed. Unlike Greece or Spain, the United Kingdom did not come under pressure from the E.U. Neither was there pressure from the bond markets; interest rates and borrowing costs were quite low. British politicians chose to slash spending and impose austerity on the British economy. The lesson should not be lost on America’s political leaders. Like the United Kingdom, the United States has control over its economic policies. It should not choose austerity.

Current American monetary policy is avoiding chances of hyperinflation. As long as that continues to be the practice, there really is no good, practical, commonsense reason to avoid using the benefits of America’s mixed economy to it’s maximum potential.

The most difficult aspect in this is explaining how the US economy is not as with a typical family budget having to “live within its means.” The typical family household cannot legally create legal tender. The US government can, and it can do so in ways that manage to stimulate growth while avoiding hyper-inflation.

None of this directly addresses the whole Wall Street bailout cum regulation/de-regulation debate of course.

The “too big to fail” concept should be viewed in the light of what the government was able to do in the S&L crisis. Had the 2008 crash been handled much in the same way that the S&L crisis was handled, then the stimulus spending (which could have been better targeted and had stronger strings attached) would have been more effective than it has been — rather than merely staving off a deeper recession/depression, growth could have been at twice or more the rate we’ve experienced and still without runaway inflation.


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