Catherine Rampell, the New York Times’ usually sensible economist, provides a good commentary on today’s depressing Commerce Department report on our stagnant economy. If you read the first two thirds of her article, you’d logically conclude that unless we can find a replacement for the rapidly fading federal stimulus, there isn’t anything on the horizon to raise GDP growth and boost employment. Logically she ends with this:
“There’s not going to be additional monetary stimulus, and it’s hard to imagine any fiscal stimulus given the current discussion in Washington,” Mr. Ryding said. “So what’s going to get us out of this? The inevitable conclusion is time, and that’s not very satisfactory.”
But somewhere in the middle, without warning or logic, Rampell gets captured by Pod People.
The Commerce Department report tells us the economic recession was much deeper than previously believed — we are still not back to the GDP levels of 2007. And the second dip this year, while not yet technically a “recession” because GDP growth hasn’t gone negative yet, was worse than originally reported.
As Dean Baker reminds us, demand was crushed, the 2009 stimulus helped reverse that, but the stimulus is quickly winding down and is now offset by severe reductions in state government spending.
The result is entirely predictable: Depressed demand from people losing $6 or $7 trillion in wealth, plus declining or negative stimulus, equals a declining economy, with little or no growth and worsening unemployment. You couldn’t ask for a clearer confirmation of Keynes and the need for immediate, substantial new stimulus.
So what happens when a sensible economist becomes a Pod Person? They say things like this: [cont’d.]
Washington, therefore, has a delicate balancing act in its current debt ceiling debates. Given the unsustainable debt trajectory that the economy is on — primarily because of the country’s growing health care obligations — Congress needs to impose greater fiscal discipline. But imposing too much too soon, or being too focused on the wrong types of spending cuts, could be self-defeating by weakening growth so greatly that tax revenue falls and requires the country to borrow even more.
Given inflation concerns, it also seemed unlikely that the Federal Reserve will swoop in with another round of monetary easing to goose growth.
Shorter Rampell: The economy is gasping for air, so we need to cut off the oxygen supply more slowly. Since core inflation is very low, the Fed should worry about hyper inflation. And because our private health providers charge too much to provide less than universal coverage, we have a debt crisis and should cut Medicare.
You can’t argue with Pod People.
(For a human interpretation of today’s dismal economic report, see Dean Baker.