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Wednesday, March 24, 2010

"Recovery Depends on Main Street"

Robert Reich is not very encouraged by the fact that global companies, Wall Street, and the wealthy appear to be doing better:

Recovery depends on Main Street, by Robert Reich, Commentary, Financial Times: Can the American economy recover if only its big global companies, Wall Street and high-income Americans are doing better, but its small businesses and middle and lower-income Americans are not? The short answer is no. ...
US companies have lots of cash... But this cash is not going into new investment. ... None of this is stopping supply-side fanatics from arguing government needs to cut taxes on big corporations to spur the recovery. Their argument is absurd. Big companies do not know what to do with all the cash they have as it is. They are not investing it in new plant or jobs. So why should the government cut their taxes and enlarge their cash hoards even more?
The picture on Main Street is the opposite. Small businesses are not selling much as they have to rely on American consumers and Americans still are not buying much.
Small businesses are also finding it hard to get credit. ... While big companies are finding it easy to borrow in the bond markets, smaller companies depend on bank credit, whose supply remains limited. ... This is a problem because companies with fewer than 100 employees accounted for almost half of net job growth during the last two recoveries...
Unemployment or fear of it continues to haunt the population. That is a major reason why consumer confidence is still dropping. There is also the extra need to save as boomers face retirement. Given all this, it is sensible for Americans to continue holding back from the malls, but this means a painfully slow recovery. ...

The economy shows signs of improvement largely because the government is spending huge sums and the Fed is essentially printing even more money. But where will demand come from when the stimulus is over and the Fed tightens? That question hangs over the economy like a dense cloud. Until there is an answer, a sustainable recovery for any other than America's largest corporations, Wall Street and the wealthy is a mirage.

I think it's an open question as to whether we are headed for a self-sustaining recovery, or whether we stay at the bottom of the valley for awhile waiting for the economy to take-off. With unemployment as high as it is, with labor markets as weak as they are, and with Congress seeming to forget about the unemployed as it pats itself on the back (or hurls insults) over health care reform and moves onto financial reform, it's fairly certain that labor markets will remain weak -- weaker than they would be if Congress would give them the attention they deserve -- for some time to come.

    Posted by on Wednesday, March 24, 2010 at 04:26 PM in Economics | Permalink  Comments (55)


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