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No Recovery From the Great Recession Is in Sight
Raymond Richman, 3/28/2013

As I reported last week, initial claims for unemployment compensation during the week ending March 16, 2013 broke below 300,000 for the first time since 2007. And I asked if it marked the beginning of a recovery from the Great Recession. It turns out that the answer is negative. The number of initial claims rose in the following week ending March 23, 2013. The seasonally adjusted number of initial claims rose by 16,500 to 357,000 and the seasonally unadjusted (the actual!) number rose 14,706 to 315,659. Of course, the preceding week’s numbers could have been a fluke and so could the latest week’s numbers.

What is hampering the recovery? Just this week in an op-ed in the Wall Street Journal, Mortimer Zuckerman, editor and publisher of the US News and World Report, labeled the claims of recovery to be a fantasy, pointing out as we have done, that the true unemployment figure is 14.9 percent, not 7.7 as reported officially.

The claims of recovery appear to be substantiated by the rise in the prices of stocks as indicated by the Dow-Jones and other stock markets indices.  But the quantitative easing by the Federal Reserve Board has provided financial institutions with increased money for lending, much, if not most of it, has simply increased the prices of assets such as stocks and real estate. The FED’s financing of the trillion dollar deficits has enabled increased government spending which is a stimulus to the economy as long as it lasts but is at the expense of diminished private expenditures.

The stimulative effects of increased government spending on consumption and investment are largely offset by the fact that it stimulates imports and does nothing to increase exports. In fact, it is government policy to stifle the production of fossil fuels which we still import. The trade deficit rose to $44.4 billion in January, 2013 from $38.1 billion in December, 2012. Fortunately, the private sector has been increasing the output of oil and natural gas in spite of environmental extremists’ powerful influence on government policy. In fact, the fossil fuel boom is the strongest stimulus to the recovery we have and helps to offset the depressing effects of the government’s “green” policies.

The FED’s quantitative easing was expected to increase the demand for goods. As we noted, its principal effect was to stimulate profit-taking in the stock markets making members of the upper middle class and the rich richer. Luxury boutiques are doing well and so are luxury imports, hence worsening the trade deficit.

To make matters worse, the government’s subsidies to such green expenditures as hybrid autos, electric-powered autos, insulating buildings, and wind and solar energy, have created a few jobs at an enormous cost. Those jobs would cease to exist without the government subsidies. Prof. Kent Moors, an energy expert, cites in a newsletter the IMF as the source for estimating the world’s green subsidies at $1.9 trillion dollars. Surely there is a better use for that amount of money! There is little evidence that these enormous expenditures have had any effect on climate change. This year’s elongated winter in northern countries seems to contradict the claims of the environmental religionists. Utilities are forced to buy the expensive electricity produce by wind and solar plants and they pass it on, of course, to their customers, consumers and businesses.

The latest report of the federal Bureau of Economic Analysis reports that the economy grew at an annual rate of only .4 of one percent in the fourth quarter of 2012, which for all practical purposes is no growth at all. After four years of trillion dollar deficits with few signs of recovery, it is insane not to change our policies, cease subsidizing foolish government expenditures, bring our international trade into balance, and make the U.S. attractive once again to private investment. That is the only way to recover, to reduce unemployment, and once again make the United States economy the model for achieving higher living standards. 

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]