Economic Overview: Is the
Worst Behind Us?
C.A.J. Dist. Prof. of Economics
When is the economy going to
get out of this recession?
Not in the foreseeable future. The
reason: We are not in a recession. We
are in a suppressed depression.
What is the difference between a suppressed
depression and a recession?
A Recession is what an
depression is what a 60
year old 450 pound 5 ft
10 inch man who parties
all night, and who thinks
he is still 18
Stop pulling punches and sugar coating the problem.
Let me put it bluntly. The US economy is best thought
of as the economic equivalent to an old, overweight,
out of shape 65 year old who has had a serious heart
No politician on either side has wanted to tell the US
public that, and until we do, we will not be dealing with
The “Suppressed Depression”
Federal Budget Overhang
Not an additional 1.5 trillion
Not an additional 4 trillion
An additional 10 (and possibly 12) trillion
dollars that we need to cut
How to Deal with these
A United Voice
Impossible Expectations and
The US can produce plenty of jobs—but it cannot produce the type jobs we
want at the pay we want. That’s what unemployment is telling us.
Unemployment serves a purpose—it reduces expectations. The problem is
that it does so unequally—some people face the harsh reality while others of
us simply watch.
Here is the reality: In today's global economy, the US economy is not going
to produce the jobs we want—not the private sector, not the government—
nobody. The jobs we can produce involve harder work and lower pay than
people want to accept. As long as there are 100s of millions of non-US
citizens who can be as productive and are willing to work for less, global job
creation will go elsewhere.
Somehow our desires and the capabilities of our economy have to converge.
And unless we can figure out another way to lower expectations we “need”
high unemployment to do it.
What makes policy so hard is that
there are three Americas, not one
Group 1.—those who have faced global competition.
Group 2—those who have not yet faced global competition.
Group 3 –those who gained from global competition.
Group 1—basic manufacturers, unskilled, some skilled
Group 2—lawyers, government workers, teachers, professors,
specialized manufacturers, upper middle class Americans.
Group 3—financiers and high level corporate executives who are
Here is what is in store for us.
What advice do I have for state
auditors and treasurers?
Realistically, probably none, but I do have
some cheerleading for you.
Your job is central to the future success of the
nation. You are the people society has
entrusted with the financial health of society.
You are the ones who can bring about “the
talk” by not letting any unrealistic rosy
Multi-year moving average budgets
Push for a multi-year moving average budget, which
automatically builds up a rainy day fund when
revenues rise, without showing it as a surplus on the
budget, so politicians spend it. Actually, you need not
only a large rainy day fund. You need a raining
season fund, and a moving average budget builds it
into the accounting procedures.
Change to rhetoric about government expenditures and
The discussion about taxes and expenditures has gotten off track. It has
separated the discussion of taxes from the discussion of government services.
That connection needs to be returned. Taxes are really fees. They are the price
we pay for the government services we receive. Without government the
economy can’t function, so they are fees worth paying. The narrative has to
change to emphasize the benefit principle of taxation, which sees taxes as fees
for payment for government services, not the ability to pay principle.
That does not mean the rich should not pay more than they currently do. But if
they should the argument is not because they have the ability to pay, but
because they receive more benefits—a stable, functioning economy is
necessary for wealth preservation and the government provides that.
The standard economic rule in fee setting is the inverse elasticity rule, and at the
federal level the rich have much more inelastic demands so following standard
business practice, they would pay significantly more than others based on the
benefit principle and standard economic analysis.
On the state level, it is less clear, and far less progression is likely optimal.
Help introduce ways to stop giving away the ship.
Introduce the equivalent to government reverse mortgages for
those who cannot afford to pay their taxes, rather than letting them
not pay their taxes at all.
Have a heart, but make that heart hard, not soft.
Two examples: Property tax rebates for the elderly and the “income
poor”, but “house, or asset, rich”.
Low income should not exempt people from incurring their tax
Instead of tax rebates, government could provide “automatic tax
loans” secured by a could have reverse mortgage loans from the
government, where the tax on the house could be
That loan portfolio could be used to back up government bonds and
borrowing, reducing the problem slightly
I could go on with some additional
suggestions, which I can make because
I’m not in any political line of fire.
My take away for you is you are a key
part of the solution—you are the ones
who have to give “the talk” to the front
line politicians, who in turn have to give it
to the public.
I wish you good luck.