Killing the Recovery
Tax hikes won't cure an ailing economy.
11:00 PM, Nov 8, 2009 • By IRWIN M. STELZER
As I mentioned in earlier columns, there are times when the economic data point in one direction, and businessmen in the privacy of their board rooms point in another. A case in point is the recent report that the recession is over: the housing and manufacturing sectors are recovering; once threatened with terminal illness, Ford Motor Company seems to have moved into profit; and retailers have sheathed the hari-kari knives they sharpened in anticipation of a gloomy holiday season as many categories of goods -- sporting goods, appliances, apparel -- sell at the most robust pace in a year, although not at the levels recorded at the peak of the consumer boom. Sales last month ran about 2% higher than in October 2008, the second monthly year-over-year increase and the highest level since April 2008. Even retailers in recession-hit California are beginning to believe that there just might be a Santa Claus.
"I'll believe it when I see it on my top line," seems to be the attitude of most businessmen, who are hoarding cash in record amounts. The Wall Street Journal estimates that corporate cash hoards now total over $1 trillion, or about 11% of assets, compared with $846 billion, or less than 8% of assets not much more than a year ago. Show us the demand, not statistics about the demand, corporate executives say, and we will dip into our ample treasuries and begin investing and, more important to the Obama administration and a Congress now only one year away from an election, hiring.
Which might in the end be very good news indeed, and provide evidence to help resolve the question of the durability and speed of the recovery that seems to be underway. You know: which letter of the alphabet do you most believe in -- the V of a rapid recovery, the W of a double-dip recession, the U of a bumping along before recovery takes hold, or any other part of the alphabet soup that is on the menu of all forecasters these days.
Lest you put too much faith in economists, consider their record at the time of the recession of 1982. As David Leonhardt reports in the New York Times, the recession seemed to be ending in the autumn, but the unemployment rate was heading to 10% as Ronald Reagan and Federal Reserve Board chairman Paul Volcker sought to ring Jimmy Carter's inflation out of the system. The New York Times quoted prominent economists who worried that "the recovery may amount to nothing more than a few quarters of paltry growth -- and possibly not even that [and] had growing doubts about whether the mechanisms of economic recovery will -- or can -- operate as they have in other business cycles." The economy, no respecter of economists' forecasts or worries, proceeded to grow at the rapid annual rate of six percent for the next two years.
Which might provide some perspective on today's job report, showing that the economy lost another 190,000 jobs in October, taking total losses since the recession started to 15.7 million and the unemployment rate past the politically sensitive double-digit mark, to 10.2%. About where it was right before the rapid economic growth of the early 1980s.
It certainly seems possible that the pieces are in place for a similar rapid recovery. The pile of cash on which corporations are sitting is available for investment and hiring at the first signs of a durable recovery in consumer demand. Inventories are at low enough levels to encourage restocking, especially since the holiday season now seems likely to be merrier than was believed only a few months ago. The dollar is weak and weakening, which should encourage exports and discourage imports, meaning more jobs for American workers. The Federal Reserve Board's monetary policy gurus met last week and the inflation doves routed the inflation hawks -- for those who don't follow Fed internal disputes, this means that those who see no threat of inflation, or of a rise in inflationary expectations, and who believe that the excess capacity in the economy will keep prices from rising, are in the policymakers' drivers seat and will keep interest rates low for the foreseeable future. Good news for the housing and other interest-rate sensitive industries.