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Japanification Everywhere, and the Administration’s Central Mistake

The reason that a $300-$400 billion jobs program can be seen as not bold enough is simply due to the fact that the world is in an historic economic crisis, and government policy is only making it worse. The OECD delivers the depressing news today.

Economic recovery appears to have come close to a halt in the major industrialised economies, with falling household and business confidence affecting both world trade and employment, according to new analysis from the OECD. Growth remains strong in most emerging economies, albeit at a more moderate pace.

“Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up,” OECD Chief Economist Pier Carlo Padoan said during a presentation of the OECD’s latest Interim Economic Assessment.

Economic growth in the G7 economies excluding Japan will remain at an annualised rate of less than 1% in the second half of 2011.

Arguing about whether we’re going to have a double dip recession seems rather symbolic to me. We’re either going to fall on the slightly positive or the slightly negative side of the growth ledger. This means nothing for the broad majority of people. If we manage to stay out of recession by 0.1% or whatever, job growth will still be non-existent, the unemployed will still suffer, state budgets will still contract and harm families, the economy will still be running well below capacity. Anyway, economic forecasters are about as good at predicting recessions as they are at predicting jobs numbers. Either way, what we can predict is what we know based on all the data – the economy is running at a speed much slower than possible.

And this is a global problem, exacerbated by bad global public policy. The United Nations released a disturbing report yesterday about austerity and the global economy:

The pursuit of austerity measures and deficit cuts is pushing the world economy toward disaster in a misguided attempt to please global financial markets, the annual report of the United Nations economic thinktank UNCTAD said on Tuesday.

The report, entitled “Post-crisis policy challenges in the world economy,” savaged U.S. and European economic policies and called for wage increases, stricter regulation of financial markets, including a return to a system of managed exchange rates, and a conscious break with market-led thinking.

“The message here is very pragmatic: we need to reverse our course quickly,” said UNCTAD Secretary General Supachai Panitchpakdi.

Except there’s no way we’re going to do that. Europe doesn’t even have an authority that can create a unified policy for all of its different actors. And in the US, we get a too-late and too-small return to jobs.

What you have to understand is that this Administration never expected that they would have to give a jobs speech in September 2011. They wanted to run a “Morning in America” campaign for re-election after a recovery. They didn’t do the work to ensure that recovery, but they certainly put a lot of work into envisioning that campaign, work that now needs to be scrapped. Elites thought the economy would recover because “it always has.”

This neglects the fact that our economic woes are the culmination of a thirty-year cycle, featuring productivity that rises while wages stagnate, stratifying inequality, massive private debt and a shrinking middle class. The need for a total restructure of the US economy was evident. But this cautious Administration didn’t even think along these lines. They saw the federal budget deficit as the biggest problem facing the economy. The fact is it was an artifact of a giant recession, two wars and tax cuts. But those issues weren’t addressed.

I think the Administration and its supporters are pretty sad about the fact that their big bet on Morning in America failed. This was their entire strategy, and it didn’t materialize. Here’s Digby:

But beyond that strategic cock-up was the apparent bipartisan belief that Obama’s first term was following a sort of Gipper logic, by which it was assumed that there would be Morning in America, despite the fact that the actual economic details differed greatly from that time and they were facing rabid Republican extremists rather than fat and lethargic Democrats as Reagan had. Where that came from I still don’t know.

In any case, there can be no doubt that those two strategic decisions — assuming the economy was recovering on its own and emphasizing deficit reduction even in the face of evidence that it wasn’t — were huge errors. But then the austerity error is in vogue all over the industrialized west, so perhaps someone just put something in the water at Aspen and Davos.

So now we have nothing much to look forward to except wait for someone willing to challenge the orthodoxies that have chewed up the American middle class for the last three decades.

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David Dayen

David Dayen