Floyd Norris wrote a piece today over at the NYT about how the economic recovery is going much better than people think. Our own in-house economist, Prof. Steven Kyl of Cornell University, says “not so fast.” First some Norris, then some Kyl.
The American economy appears to be in a cyclical recovery that is gaining strength. Firms have begun to hire and consumer spending seems to be accelerating.
That is what usually happens after particularly sharp recessions, so it is surprising that many commentators, whether economists or politicians, seem to doubt that such a thing could possibly be happening.
And here’s what Steve Kyl emailed me:
Well, I am not as giddy as they seem to be. In fact, the economy seems to be pretty much on track with my forecast of last December which was “not in recession but not so good it will feel like a recovery.” Certainly if you are one whose happiness is measured by the stock market, then 11,000 is a lot happier than 6,000 – but I am not one who thinks an employment report of 160,000 new jobs is Happy Days. That number is positive – a good thing after a long period of losses – but it is barely high enough to give jobs to new entrants to the job market, and wont make a dent in the 8 million or more jobs we need to be back to a reasonably good situation.
This is precisely the situation many of us have been worried about with a too small stimulus package. We would get to a place where the downward momentum has halted but there is not enough demand to provide upward momentum in its place. There is still a huge backlog of residential housing, there is still a lot of trash on the balance sheets of banks and capacity utilization is still too low to expect a surge in business investment. In short, we are staggering along at a low level equilibrium that is barely keeping us at a more or less constant level – and our current level is not one we should be happy to remain at.
To get to a better place we need another stimulus – a real one, not window dressing – because the rest of the world is not in limbo waiting for us – good and bad things can happen and we are vulnerable to them in our current status. Take Greece for example – I am no chicken little but any reasonable observer has to admit that there is at least a POSSIBILITY of very bad news that could be contagious across borders. The Middle East is also always a wild card. Who wants to gamble that we can stagger along without outside issues interrupting our slow recovery? Why should we want to?