Economic Growth vs Deficit Reduction

http://economix.blogs.nytimes.com/2012/12/14/the-trade-off-between-economic-growth-and-deficit-reduction/?ref=business

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"No leader, however great, can long continue unless he wins victories" (Bernard Law Montgomery)
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Laura Tyson is a professor at the Haas School of Business at UC Berkeley, and served as chairwoman of the Council of Economic Advisers during President Bill Clinton's administration.

Her perspective on this "recovery" from the deepest recession since the Great Depression is that the "pace" is frustratingly slow. Since 2010, annual growth of gross domestic product has averaged about 2.1%. This is less than half the pace of previous recoveries since WW II.

Tyson points out that most economists see weak aggregate demand as the primary reason for this weak GDP growth. Growth in the two components of private demand - consumption and residential investment - has been especially slow.

Residential investment is still depressed as a result of overbuilding during the 2004-2008 housing boom. Business investment has been slow because of lackluster customer demand and weak sales prospects.

So, the cutbacks to spending into the economy implied by doing nothing about the "fiscal cliff" (ie. letting it happen) would have large negative effects on demand, output and employment. There would be 3.4 million fewer jobs by the end of 2013 if Congress allows the "fiscal cliff" to happen.

So, Tyson is another voice, along with Krugman and Buffet, for spending into a weak recovery or we could just watch a recession return.

According to the Dallas Fed's forecast released yesterday, Texas job growth will continue in 2013 but at a slightly slower pace than for this year. According to the report, "Energy, exports and construction have driven Texas employment above its pre-recession level in 2012..." but that employment has slowed lately. Low natural gas prices have led to a decline in well permits and drilling.

The weak global economy has hurt Texas exports to China and the European Union. But Texas construction jobs lead the U.S. in growth: 46,900 jobs in the 12 months thru October. Last month, existing home sales were up 29% FROM A YEAR EARLIER!  That can only be good news - no qualifiers.

What looms large in the background here is big business which has been sitting on (by various measures) at least $2 trillion in cash since 2010. CEOs that have been interviewed by those with "access" have continuously said that they're reluctant to invest in the U.S. because of the uncertain economic environment. That involves regulation, taxation and various combinations thereof.

Let's see what happens when the smoke clears.

Merry XMAS and Happy Holidays!