What seems to be largely ignored in economics reporting is the problem of a lack of job creation. Brad DeLong has correctly pointed to the surge in productivity growth that began in the mid 90's and continues. The faster productivity growth, the faster GDP growth must be for there to be a reason for employers to create jobs. GDP growth has been to slow for significant job creation for months. When GDP growth surged for a quarter in 2002, the reason was mostle inventory replacement. Consumers spent and spent through the recession, there is little reason to believe they will add to spending. So, demand has to come from industry to add to GDP growth and I do not know what might drive such industry demand soon.

The parallels between Japan's slowing in the early 90's and our slowing from 2001 strike me as growing. Also, we can not soon look for stimulus from faster growth in Europe or Japan.

Worrisome.

I've been grimly amused over the last few months just how much of the optimists' case for economic growth relies upon numerology, of the "gosh, the economy has to rebound, sometime, right?" and "the market hasn't had four down years in a row since the depression!", which isn't particularly comforting logic. I'll bet analysts were saying similar things in 1931.

The similarity to Japan's 90s malaise is frightening. Wasn't Paul Krugman warning us about this, oh, five years ago?

And what's the current administration's prefered fix for this mess? A series of massive tax cuts, phased over a decade, targetted at the very wealthy, who have the least incentive to spend it and stimulate demand. It's like Hoovernomics, only stupider.

Also, Brad DeLong has pointed out the there has continued to be significant capital spending on technology during the slow down. The problem here is that technology spending has not been enough to keep prices of the goods from falling. Technology spending is continuing, but as prices fall revenue from the spending grows slowly.

Wish more of the economic press would read Brad DeLong and Paul Krugman.

"And what's the current administration's prefered fix for this mess? A series of massive tax cuts, phased over a decade, targetted at the very wealthy, who have the least incentive to spend it and stimulate demand. It's like Hoovernomics, only stupider."

Yes, it's exactly like Hoovernomics, except that Hoover jacked up the tax rates instead of cutting them.

What then are we to make of Robert Lucas' remark during his presidential address to the AEA:

"Taking U.S. performance over the past 50 years as a benchmark, the potential for welfare gains from better long-run, supply side policies exceeds by far the potential from further improvements in short-run demand management. . ." ?

From: http://home.uchicago.edu/~sogrodow/homepage/paddress03.pdf

Bob,
Can you answer your own question for the interestedly ignorant among us? In a way that avoids topic drift, of course.

I fear greatly that the economic press might latch on to the views of DeLong and Krugman and Roach. Not that those views are wrong, but what we need is an impossible world in which policy makers respond to one set of economic views, the one that makes the scariest headlines, while the press ignores them and continues to write about the eventual upturn. I don't want the spending public to become convinced that prices will fall or that jobs will become less secure. Yikes!

However, since DeLong's view makes for good reading, and since a rise in the jobless rate seems pretty likely and likely to get journalists interested in the bleak economic outlook, my little fantasy seems doomed to remain a fantasy.

Wow. The Clinton economic team dug us one hell of a hole. Too bad they were insisting up to Jan 01 that the economy was fine and dandy.

I don't think the parallels between the U.S. and Japan work well at all.

There's at least three very large problems in Japan NOT facing the United States.

1. Demographics. The Japanese LABOR FORCE has been shrinking at approximately a 2% annual rate for several years now. It's very difficult mathematically to grow GDP in the face of a shrinking labor force. Even worse, there are qualitative sociological issues created by a shrinking aggregate economy that are not well understood, in part because no one has seen this happen before in the modern era.

2. The Japanese never cleaned up their financial system after it was crippled by the bad lending practices of the 1980s. Lots of bad loans are still on the books of major banks and there's limited banking capital to support new loan activity. The U.S. did a better job of cleaning up and writing off the bad 1980s loans, and the steep, steep yield curve of 1991-1993 helped our banks recapitalize, as did the stock market boom of the same period.

3. The Japanese economy was a great manufacturing engine throughout the 1960s, 1970s and 1980s . . . . but as their economy matured and the "Little Tigers" began to mimic Japanese manufacturing methods, the Japanese model became more and more difficult to execute profitably. Japan ended up moving lots of their manufacturing offshore into lower cost areas, but that strategy was coopted by other countries such as the United States. In Malaysia, or Taiwan, or wherever, Japan manufacturers have less advantage over U.S. and other manufacturers. And then China came along competitively to further erode Japan's edge.

Yeah, that d*mn Clinton Economic Team. They're all to blame. I really wish that we could get some grown-ups in charge of the federal government, maybe some MBA/CEO's with Real-World Experience. They could dig us out of the horrors of the 90's, into the New Light of the 00's.

And they wouldn't play this adolecent blame game, always pointing at the preceeding Bush administration and blaming it for everything. They'd stand up at say 'The Buck Stops Here', as Real Men from the Real World of Business and Responsibility and Actually Earning Your Money Instead of Having The Government Give You Money do.

Robert Lucas is a University of Chicago economist, bent on conservative ideology no matter the evidence against its effectivness. So if the world were other than it really is, Lucas might be right. Duh.

Paul Krugman -

So the latest round of Bush tax cuts, like the previous round, mainly provides benefits to the very, very well off - and once again the administration is shamelessly misrepresenting the content of its own policies. But aside from the honor and integrity thing, should we care?

There's been a concerted effort to convince us that we shouldn't - that anyone who even pays attention to who gets what must be motivated by envy. Consider a recent cover of Business Week. Under the headline "Class Warfare," it asked: "Suppose Bush's tax plan works: It raises long-term growth, reduces unemployment, boosts workers' wages, and eventually cuts a rising deficit. ... Now suppose the rich get richer, and income inequality gets worse. Time to vote."

As Superman used to say, "What th'?" Does Business Week really think that's the argument - that opponents of the Bush plan agree that it will do great things for the economy, that the increase in inequality it will cause is their only objection? In fact, those who oppose the Bush plan think it will work no better than the 2001 tax cut: that it will do little for growth or employment, and will sharply raise the deficit. (These guys now have a track record, and it's not encouraging. In the year and a half since that tax cut, which was sold as the perfect economic stimulus, the economy has lost 1.4 million jobs.)