Economic lessons — the hard way
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Kai Ryssdal: Those numbers Jeremy ended with are a good start for this next story. It is not a good thing that a year into a recession job losses are getting steeper, because any eventual recovery hinges in large part on people getting or keeping jobs and starting to buy again. So given that, we asked our senior business correspondent Bob Moon to figure out, now what?
Bob Moon: The idea that those who don’t learn from the past are condemned to repeat it is difficult to apply this time around.
IAN SHEPHERDSON: There’s never been an economic cycle like this one, so examples from history are pretty sketchy.
Ian Sheperdson is chief U.S. economist at High Frequency Economics. He says there are some similarities to the Great Depression, so what might work is a massive stimulus plan like FDR’s New Deal — perhaps, as President-elect Obama is considering, focusing on public works projects to rebuild the nation’s infrastructure.
SHEPHERDSON: Public spending would provide substantial employment in some of the very weakest bits of the economy like construction, and it would make room for the private sector to continue its adjustment without the economy having to be in total freefall, as it appears to be at the moment.
DAVID WYSS: The advantage of infrastructure is that unlike consumer spending, you can’t import bridges from China.
S&P’s Chief Economist David Wyss agrees the government my need to take over in a big way, but —
WYSS: You’ve got to be careful, because Japan tried the same thing when they ran into this in the ’90s. They put in huge infrastructure projects. They basically paved every square inch of the island, and you still didn’t really get out of the slowdown. It did keep the unemployment rate under control though.
Once burned, the Japanese were shy to spend, borrow and invest. Instead, they socked their money away. Sound familiar? University of Maryland economist Peter Morici says the government needs to do more than just flood the market with money:
PETER MORICI: Two things will get people back to work: get the banks lending again, by putting conditions on the loans that we make to the banks, and fixing the trade deficit. We simply consume much more than we produce. In the end, there’s not enough work for Americans because we’re not buying the products here. So we have to fix the trade deficit.
That solution could take a variety of directions — including reforms that might be aimed at encouraging new business growth, which ultimately is a necessary part of any long term fix.
Whatever the solution ends up being, economist Ian Shepherdson says it’ll take time.
SHEPHERDSON: The problem is that of course none of these things work very quickly. And it means that we’re probably going to see a run of pretty terrible payroll numbers stretching out for quite a few months yet.
In other words, we’re learning as we go — the hard way.
I’m Bob Moon for Marketplace.
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