The IMF On The U.S. Economy

http://economix.blogs.nytimes.com/2013/06/17/the-current-u-s-economy-text-and-subtext/?emc=eta1

 http://www.nytimes.com/2013/06/17/opinion/krugman-fight-the-future.html?partner=rssnyt&emc=rss

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"A competent leader can get efficient service from poor troops, while on the contrary an incapable leader can demoralize the best of troops." (General John J. Pershing)

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If I could put two brilliant minds together and see how the IMF views the U.S. economy, that would be my objective for these thoughts.

Jared Bernstein's view on what the IMF has just published is that they see the U.S. stuck in a "sloggy," "backward-leaning," L-shaped recovery: "The United States economy, with considerable prodding from fiscal, financial (the bailouts), and monetary help, exited a historically deep recession in the second half of 2009, but has been growing relatively slowly since then." Not enough stimulus for not long enough.

IMF: "Underlying fundamentals have been gradually improving." Bernstein: "Whose fundamentals...? At times like this, there's a risk that the economy is doing well, EXCEPT FOR MOST OF THE PEOPLE IN IT!" (my caps)

IMF: "The modest growth rate of 2.2% in 2012 reflected legacy effects from the financial crisis and deficit reduction..." Bernstein: "Current growth rates are not fast enough to put much downward pressure on the unemployment rate...(20 million who are un- and underemployed). Moreover, the IMF predicts slower growth (1.9%) this year."

IMF: "...house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong..." Bernstein: "All true, and all helpful developments, especially the housing part, but there's a large imbalance between improving labor market conditions and corporate profitability...In fact, the compensation share of national income is at a 48 year low, the profit share at an all-time high."

Bernstein: "The picture painted in broad strokes by the IMF is correct and not all without hope. As they say, things are improving, albeit too slowly. But in every case, we could be doing better were it not for policy mistakes."

Krugman refers to an article in the IMF Survey magazine titled "Ease Off Spending cuts to Boost U.S. Recovery." The title speaks for itself. But, Krugman has an issue with Christine Lagarde, the fund's head, who called on us to hurry up and put in place a medium term road map to restore long run fiscal sustainability. Krugman's gripe: "Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we'll deal with fiscal issues of the 2020s, the 2030s and beyond?"

Krugman's answer: "No it isn't. And in practice, focusing on 'long-run fiscal sustainability' -- which usually ends up being mainly about 'entitlement reform,' aka cuts to Social Security and other programs -- isn't a way of being responsible. On the contrary, it's an excuse, a way to avoid dealing with the severe economic problems we face right now."

So, the time for big decisions about the long run is not yet: "And, because the time is not yet, influential people need to stop using the future as an excuse for inaction. The clear and present danger is mass unemployment, and we should deal with it, now."

In addition to being a Nobel Prize winner in economics, Krugman authored a book published in 2011 entitled: "End This Depression Now." The book eloquently makes the case for a burst in government spending to jump start the economy. Proof that he's right is the underwhelming GDP growth in the U.S. since the original "stimulus" was enacted. Both Krugman and Warren Buffet said, at the time, that it (the "stimulus") would not be enough, and they have subsequently been proved right.

I'm going to guess that things will start moving again by 2020. They could have started "moving" again a lot sooner with more spending and cost cutting later on after things got better.