The U.S. economy is teetering on the brink of another recession. The bad news is that if it goes down again, there won’t be much we can do to save ourselves. Like a weary heavyweight, if it hits the mat again, it’s down for good.
The expansion has been terribly disappointing—growth is hardly 2 percent and jobs creation barely keeps unemployment steady at 8.2.
Manufacturing and exports powered the recovery but are now weakening. Consumer spending and existing home sales are flagging, because policymakers failed to aid underwater homeowners as generously as the banks.
President Obama is doubling down on slow growth policies—new restrictions on offshore oil and CO2 emissions, and pushing forward with financial regulations that haven’t stopped Wall Street banks from trading recklessly and rigging markets as indicated by the Libor scandal.
Governor Romney has reverted to shop-worn Republican prescriptions—tax cuts, free trade and deregulation.
With the federal government spending 50 percent more than it takes in, no sane economist could endorse big rate cuts, beyond renewing the Bush tax cuts.
China, by manipulating its currency and shutting out western products, helped cause the Great Recession and is now constraining recovery in the United States and Europe. More free trade agreements won’t fix that.
Dodd-Frank may be bureaucratic and ineffective but no sane person could claim banks can regulate themselves—smarter solutions, like breaking up unmanageable and unsuperviserable institutions, is needed.
Many analysts ask if another big innovation—like the automobile or computer-- is coming and could save the economy. The problems are many new products are creating more jobs in Asia than in the West, and many technology companies are consolidating or facing extinction—consider the smart phone, Hewlett Packard and Yahoo.
A lot of US innovation is starting to look more like French art than American commerce. Icons like Yahoo, Facebook and Twitter have made great contributions to the economy and culture but simply don’t have business models that generate enough revenue and sustainable jobs growth.
Google has succeeded by cannibalizing newspapers—the net effect has been to destroy more—and branching into software and media—which merely displaces workers elsewhere.
Meanwhile, the profitable core of finance—investment banking—is shrinking. Burdensome regulations are a problem, but many clients—ranging from municipalities to wealth managers to foreign governments burnt by Wall Street schemes and securities—are now less interested in what the likes of Goldman Sachs and JP Morgan have to sell.
To save European governments, several trillion dollars in sovereign debt must be written down. Beyond lacking a plan to equitably distribute the loss, Germany and other stronger states have not come to terms with the fact that market reforms are not enough. They cannot continue to pursue export-oriented growth strategies and trade surpluses if southern Europe is to create jobs and grow without running up trillions in new debt.
China holds the West and its own future hostage—export-driven growth runs to ground when customers can no longer finance their purchases and trade deficits. Borrowing and printing money in the United States and Europe on the scale necessary to keep the Middle Kingdom producing and exporting is no loner possible.
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