Leading Economists Question US Growth

Despite the seemingly robust growth of 5.7% seen in the last quarter of 2009, a number of noted economists, who originally anticipated the great recession, have stated their concerns and pessimism for the future of the American economy.

In Bloomberg's news-wire, New York University professor Nouriel Roubini calls the released Q4 numbers “very dismal and poor.”  He explains that more than half of the 5.7% expansion "was related to a replenishing of inventories and that consumption depended on monetary and fiscal stimulus."  In his opinion, future growth for the US economy remains tenuous and he believes that although the economy will not trend back into a recession, for many Americans -especially those who remain or become unemployed- it certainly will feel as if the recession persists.  His title as Dr. Doom remains intact.

Princeton university professor Paul Krugman has been warning Americans since the first signs of the recession that a strong stimulus program, paralleled with a comprehensive regulatory reformulation between government and America's financial institutions, was necessary in order to have the country successfully rebound from the recession.  His January 28th NY Times column outlines this theme:

We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.

He rebukes Mr. Obama and his economic team for their unwillingness to do more and warns "against the perils of complacency and false optimism."

As you read the economic news, it will be important to remember, first of all, that blips -- occasional good numbers, signifying nothing -- are common even when the economy is, in fact, mired in a prolonged slump ... the odds are that any good economic news you hear in the near future will be a blip, not an indication that we're on our way to sustained recovery.

In addition, he sternly chastises the Obama administration for engaging in budgetary gimmickry and sleight of hand policies, such as reining in non-military discretionary fiscal expenditures, while calling for increases to defense, nuclear, and homeland security budgets.  A subject Glenn Greenwald described as the Sanctity of Military Spending.

Joseph Stiglitz, another Nobel Prize winner in economics and professor at Columbia university, is equally unimpressed by the current state of affairs and has been condemning both governments and business alike in their meekness to effectively manage and resolve the underlying problems.  He too calls for a second government backed stimulus in the USA, to reduce chronic unemployment, which when including the under-employed and discouraged workers represents a rate of approximately 19%.  He states that, "I don't think anyone would describe the current situation as a strong recovery."  Furthermore, Stiglitz questions the underlying premise of using GDP as an adequate economic metric:

The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens' own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximise it, but citizens also demand that attention be paid to enhancing security, reducing air, water, and noise pollution, and so forth - all of which might lower GDP growth.

Robert Shiller, professor at Yale University, has written an article in the NY Times that discusses the underlying psychological elements affecting both consumers and investors.  He reminds people that,

business recessions are caused by a curious mix of rational and irrational behavior. Negative feedback cycles, in which pessimism inhibits economic activity, are hard to stop and can stretch the financial system past its breaking point.

The article notes that a majority of Americans do not believe that any recovery will occur for at least another two years.  Unless the population becomes convinced that serious attempts have been made to re-align risks, stabilize the economy, and pursue a long-term plan for future growth and prosperity, there will be  little realized improvements. 

The past ten years have been a disaster for the American middle class and average person.  The time for tepid half-measures and voodoo-economics has long expired.  Mr. Obama was elected to take on the institutional forces that have corrupted government and driven the entire economy to near collapse.  As all four of these economic professors indicate, serious and sustained actions are required to convince everyone that America has a plan for success that will work in everyone's interest.