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When Will the Recession Be Over? January 14, 2009

Posted by neoavatara in Economy, Politics.
Tags: , , , , , ,



There has been much discussion regarding how President-elect Barack Obama will get the country out of its current economic doldrums.  The question is, will anything he do matter?

Brian Wesbury and Robert Stein of Forbes Magazine have an interesting analysis of where we are in the recessionary cycle.  They use some of the recent income data (total hours worked plummeted 1.1%, in large part due to a sudden spike upward in the number of workers who want to work full-time but who can only find part-time jobs; hourly wages rose 0.3% in December and were up 3.7% from December 2007; eal (or, inflation-adjusted) wages likely increased 1.5%; real purchasing power of workers’ cash earnings (total hours multiplied by real hourly earnings) actually increased by about 0.3% in December) to show that though unemployment numbers are bad, and surely to worsen (they predict anywhere in the range of 9%), things are not deteriorating across the board.

Some of the economic problems currently have to do with national psyche, and its effects on spending.  Consumer spending decreased 2.8% in December, a huge decrease.  However, consumers also saved at the fastest rate in a generation, in response to the economic decline.  Talk about a plus/minus scenario.

So how much will a simulus help?  Very questionable that it will help at all.  The ‘norma’ post WWII recession lasts about 12 months.  This one now is 12 months old, starting in December of 2007.  Additionally, the $800 billion Obama is proposing will take around 1 year to really have any impact.  So we are talking financial effects in March of 2010.  That would be 28 months after the start of the recession.  Unlikely the downturn will still be in effect at that point.

Additionally, how much will the stimulus really help individuals?  Well, lets put it in perspective.  The recent gas decrease from the zenith during summer has now saved consumers $410 billion in annual expenditures. In size, on an annual basis, this is similar to the government “stimulus” measures now under consideration. And instead of the money being allocated along political lines, sometimes by cumbersome bureaucracies, the money immediately gets into consumers’ pockets.

So, basically, the stimulus is more of a political exercise than a true response to the recession.  A stimulus 12 months ago would have helped.  This package will help rebuild the infrastructure, and will stimulate the economy, but will also add another $1 trillion to an already $1 trillion annual deficit.  Ultimately, Obama will take credit for the economic recovery, when his stimulus plan likely had little to do with it.  That is fine; that is the way of politics.  Unfortunately, Mr. Obama will also have to take credit for the huge debt that he is taking on in order to respond to the economic downturn.



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