TPT March 2009

90 / 116

March 2009 88 ›
From the Americas
The US economy
Analysts try calculating the odds: Depression?
Recovery? Or a period of anaemic growth?
Shortly before the inauguration of US President Barack Obama on
20 January, economic reporter Robert Gavin of the Boston Globe
recalled a grim episode from the past: “The speed of the economy’s
deterioration has stunned economists and led to comparisons
with the Great Depression, when a financial panic dried up credit,
destroyed confidence, and led to sharp declines in consumer and
business spending.”
To stem the slide this time, Mr Obama has proposed enormous
government outlays for tax cuts, state aid, and public works projects,
in a massive stimulus package to be taken up in Congress in the
new term. In the view of economists and analysts consulted by Mr
Gavin, on its success or failure may depend whether the nation
finds a path to recovery or spirals into a depression that could last
years (‘Critical choices ahead,’ 11 January).
Christian Weller, public policy professor at the University of
Massachusetts (Boston), told the Globe, “A big stimulus has the
potential to be a game changer.”
The bright scenario was sketched by Mark Zandi, chief economist
at Moody’s Economy.com: A quick passage of a stimulus package
of $800 billion or more; tax cuts for lower-income families; benefits
extended or even increased for the unemployed, who are also likely
to spend the money quickly.
What might follow on the initial lift provided by this spending was
outlined by Mr Gavin: “Hundreds of billions of dollars goes to states
to avoid deep budget cuts and layoffs, and pay for public works
projects that create jobs, putting a floor under the eroding labour
market. Big, bold, and decisive action by the new president and
Congress gives confidence to consumers and businesses that
worst will soon be over.”
On this model, an economic rebound begins to take shape by the
second half of the year. In expectation of a recovery in consumer
spending, businesses take advantage of low interest rates to buy
equipment and expand plants. Workers are retained, and more are
hired. Unemployment, peaking just short of 8 per cent, starts back
down.
But most of the analysts consulted by the Globe were cautious
about entertaining such high hopes for the Obama initiative. Their
view, as summarized by Mr Gavin, is that the stimulus package will
merely keep the US economy ‘in the game’. Massive government
spending will help stem the rapid deterioration; but any economic
growth in the second half will not amount to much.
Allen Sinai, chief economist at Decision Economics, a Boston
financial market advisory firm, was among the skeptics. He
estimated the chances of a depression at 15 to 20 per cent. Not, he
commented, ‘a trivial possibility’.
‘A dark scenario’
During the campaign leading up to his election, Mr Obama was
credited by one commentator with having a first-class temperament
as well as a first-class mind. He will need both if his economic
stimulus plan is to succeed.
In the view of some economists interviewed by the Globe, failure
would begin with a dickering, delaying Congress that delivers
a smaller package filled with special-interest sweeteners. Their
confidence shaken anew, consumers cut spending, thus hurting
corporate profits and leading to more layoffs and even tighter purse-
strings. The housing market plunges still further, leading to more
foreclosures and undermining the already weakened financial and
credit markets. Banks stop lending.
It is probably unnecessary to go further, but Mr Gavin of the Globe
does. Businesses slash prices to attract buyers, who hold out for
better bargains. Inventories build up; businesses cut production;
more workers lose their jobs. Consumers cut spending yet again,
and the cycle repeats. The downturn deepens for two more years.
Employers cut 3 million jobs this year, and millions more in 2010.
Unemployment hits double digits; 12, 13, 14 per cent. Nearly 20
million Americans are out of work, compared with about 11 million
when Mr Obama took office.
The analysts said such a long, deep, and sustained downturn would
qualify as a depression. Mr Zandi, the Moody’s economist who
looked first at the bright side, concurs. It is, he said, ‘not hard to get
to a dark scenario’.
And yet . . .
The US has bidden goodbye to a man who is already being called
the worst president in the history of the republic. In its first post-
election issue, the Onion, a satirical newspaper whose coverage of
fictitious events has often tripped up the mainline media, played it
straight. The headline read, ‘Black man given nation’s worst job’.
The new president, said the Chicago-based editors, will have “to
spend four to eight years cleaning up the messes other people left
behind”.
On 18 January, New York Times op-ed columnist Frank Rich
acknowledged the extent of these messes: “enormous, bigger
than Washington, bigger than race, bigger than anything most of
us have ever seen”. But cautious hope could be detected in his
last piece before the inauguration of Barack Obama as the 44th
president of the United States. Mr Rich wrote, some ten weeks after
Election Day, “It remains astonishing that the American people have
entrusted the job to a young black man who seemed to come out of
nowhere looking for that kind of work just as we most needed him.”
Automotive
The thorny issue of dealerships
that decline to go quietly pits producers
against their own retailers
Reporting from the North American International Auto Show on
opening weekend, business writer Katie Merx of the Detroit Free
Press directed her attention first to a particular set of exhibitors:
the car dealers at the huge (800,000 attendees) two-week event.
The dealers, she wrote, are “at the centre of the toughest, most
political – and potentially litigious – battle that Detroit’s auto