We Have an Economic Recovery. It Costs $1.1 Trillion Per Year – and Might Still Fail

Summary:  Many economists and pseudo-experts forecast not just the long-anticipated “v” recovery, but an acceleration of the current good news into a boom.  Before we pop the corks, let’s look at the recovery, what the recovery cost us,  and how we’ve spent this expensively bought time.

What happened in 2011?

  • 1.8 million new jobs (from the current employment survey)
  • Increase in personal income of $576 billion
  • Increase in annual GDP of $965 billion
  • Cost of this recovery:  $1,057 billion of new Federal debt

The recovery is real.  Government spending sustains the economy while households pay down (or default) on their excess debt.  The recovery is real, just like the recovery of a patient in a hospital’s intensive care ward.  Wired and tubed, fluids flowing and machines humming, the patient feels fine.

  • What happens when we disconnect the patient?  Code Blue!  Immediate medical attention needed!
  • What happens if the US cuts spending to reduce the deficit? Code Blue!  Instant recession.

Let’s look at the big picture

In 1929 – 1932 our leaders did everything wrong, since they had no reliable theory to guide them.  In 2008-2009 we faced a similar situation but successfully applied costly lessons learned during the Great Depression.  We passed that test.  The second phase was more difficult, and we may have botched it.

 

(1)  We borrowed and then squandered the money.  We sustained consumption instead of using low rates and idle resources to rebuild our decaying infrastructure.

(2)  The borrowed trillions bought time for reforms to our regulatory systems, especially on the banks, so that the problems that brought us down do not reoccur.  We have squandered that opportunity.  Now banks have recovered their political strength and remain above the law.

(3)  The very success of the economic stabilization programs has had an unexpected result:  without the pain of the depression we’ve not restructured our economy (China has the same problem).  All the imbalances remain.  So a recovery seems likely to again produce underinvestment by business, continued government deficits and trade deficits.  Nor have we adequately reformed the health care system, the cost of which comprises the bulk of the government’s future liabilities.

What comes next?

The global economy has been decellerating since roughly last summer, but slowly.  The current economic data looks too confused for any reliable forecast at this time.  Almost anything might happen in 2012.

For more information about economic solutions

  1. A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
  2. A solution to our financial crisis, 25 September 2008
  3. Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
  4. Everything you need to know about government stimulus programs (read this – it’s about your money), 30 January 2009
  5. Economists discuss the impact of the stimulus on our recession, 6 October 2009
  6. Explaining the government’s response to the financial crisis, 3 December 2009
  7. Government economic stimulus is financial heroin, 28 December 2009
  8. A lesson from the Weimar Republic about balancing the budget, 10 February 2010
  9. Why the U.S. cannot inflate its way out of debt, 16 March 2010
  10. We’re still blinded by our fetters of the mind and so unable to fix the economic crisis, 13 September 2010

This post originally appeared at Fabius Maximus and is posted with permission.

3 Responses to "We Have an Economic Recovery. It Costs $1.1 Trillion Per Year – and Might Still Fail"

  1. walter   March 24, 2012 at 10:07 am

    Data can not be confused, the most probable you are the one who is confused by the data

  2. Aris Theodorou   March 26, 2012 at 5:07 am

    i agree.

    almost anything can happen in 2012 up to 2013.

    Uncertainty will be all over the place.

    Growth is indeed the answer (for both the EU and the US), but if growth (government spending) costs more than what it "pays back", then i dont know what plan B will be.

    Kick the can, look for a solution and hope it doesnt explode on your face.

    One thing is for sure. Oil at 120$ a barrel is the last thing we need for growth.

    Consumers need money in their pockets in order to spent and drive us out of this world mess. And as long as oil is so high (driving other costs up) consumers will spent less and less.

    Oil should get back at 30$ a barrel. That would be a key step for recovery.

    And also bring the jobs back from Asia. Thats another key factor for recovery.

  3. Nick   March 27, 2012 at 7:58 am

    Why should businesses invest when they over invested in the period leading up to 2007-08 and have still not taken that capacity out of production as government has stepped in as consumer of last resort. This cannot continue indefinitely and when government spending does get cut….watch out below!!! This will not end well.